Trường Đại học Tôn Đức Thắng

Khoa: Quản Trị Kinh Doanh

Bộ Môn: QTKD QT

Môn: International Cargo Transportation and Insurance

Mã môn học: 706022

706022-Chapter 6-Cargo Insurance

 CHAPTER 6
CARGO INSURANCE

706022-Chapter 6-Cargo Insurance

 Learning Objectives

LO1: Insurance Overview

LO2: Marine Insurance/Risks /Loss/Damage/Average
LO3: General Average contribution

706022-Chapter 6-Cargo Insurance

 LO1
Overview
When shipping goods around the globe, damage to
cargo is unfortunately a common occurrence 
Perils, such as labor strikes, insufficient packaging
and handling, accidents, extreme weather, etc. 
negatively impact  loss/damage
Risks  unexpected/unforeseeable events (natural or
social events)  Loss of / Damage to

706022-Chapter 6-Cargo Insurance

Methods of handling risks

706022-Chapter 6-Cargo Insurance

Risk transfer

706022-Chapter 6-Cargo Insurance

 Definition

Insurance is a commitment of an insurer to indemnity

the insured for any loss of or damage to the subject
matter insured due to risks insured provided that the
insured must pay the insurer for the amount of an
insurance policy called premium

706022-Chapter 6-Cargo Insurance

 Characteristics

Insurance works on the following concept:

 Pooling large number of people together with
similar risk to collect numerous individual
contributions,
 This pool of funds is used to compensate the
unlucky few who might suffer losses due to peril.
 Law of large numbers

706022-Chapter 6-Cargo Insurance

Principles of insurance

 Fortuity not certainty

 Utmost good faith
 Insurable interest
 Indemnity
 Subrogation

706022-Chapter 6-Cargo Insurance

 Insurance defined
The party undertakes to
indemnify the other
Insurer
• ICC 1982: UNDERWRITER
• ICC 2009: INSURER

The party is indemnified under

an insurance policy against Assured
insured perils.
• ICC 1982: INSURED
• ICC 2009: ASSURED
The party makes a contract for Policy Holder
the insurance and pay the
premium
 Insurance defined
The subject-matter insured are
insurable under a marine policy of
insurance:
(a) ship;
(b) goods;
(c) movables; Subject-matter
(d) freight; Insured
(e) profits;
(f) commissions;
(g) disbursements;
(h) wages;
(i) ventures undertaken by a company;
(j) third party liability.

ICC 1982: GOODS/ CARGO

ICC 2009: SUBJECT-MATTER
INSURED 706022-Chapter 6-Cargo Insurance
 Insurance defined

The insurer receives for

his/her undertaking is called
“premium”.

Insurance Premium- I
• R: Insurance Rate (%)
• V: Insured Value
 The insurer is not bound to
issue the policy until payment
or tender of the premium

706022-Chapter 6-Cargo Insurance

 Insurance defined
The rate is the price per unit of
exposure. Rate must be worked out at
a level that must take into account all
aspects of insurer business to cover
loses/expenses and to ensure him a
reasonable profit
Insurance
The factors that contribute to the Rate- R (%)
rate:
• Claim cost : cargo/voyage/ship/cover 60%
• Acquisition cost: brokerage/commission
15%
• Admin cost 15%
• Profit 10%
 RA / RB / RC
706022-Chapter 6-Cargo Insurance
Insurance Rate

706022-Chapter 6-Cargo Insurance

Insurance Rate

706022-Chapter 6-Cargo Insurance

 Insurance defined
Bulk or combination carriers over 10 years of age
or other vessels over 15 years of age unless they:
have been used for the carriage of general cargo
on an established and regular pattern of trading
between a range of specified ports, and do not
exceed 25 years of age, or Overage
were constructed as containerships, vehicle Additional
carriers or double-skin open hatch gantry crane Premium
vessels (OHGCs) and have been continuously
used as such on an established and regular pattern
of trading between a range of specified ports, and
do not exceed 30 years of age
(IACS: www.iacs.org.uk)

706022-Chapter 6-Cargo Insurance

Insurance defined

706022-Chapter 6-Cargo Insurance

 Insurance defined

Age R(%)
Overage
16-20 0.125 Additional
21-25 0.250
Premium

26-30 0.375

Over 30 TBA

www.pjico.com.vn

706022-Chapter 6-Cargo Insurance

 Insurance defined

The insured value of a good refers to

the value of a good specified in the
invoice issued at the place of loading or
the market price prevailing at the place
and time of loading goods together with
insurance premiums, freight rate Insured Value -V
imposed on carriage service and
estimated interest (if applicable)

= CIF
V=CIF + a.CIF
V=110% CIF
706022-Chapter 6-Cargo Insurance
Insurance defined

Insured Value -V
Example

• FOB=USD 3,000
• F= USD 20 (Vessel: 16 years)
• R=0.3%
• I=?

706022-Chapter 6-Cargo Insurance

 Insurance defined

The sum insured is the sum that

the insurer must pay the assured
when an occurrence took place

Sum Insured -A
A= V : full insurance
A<V : under insurance
A>V : over insurance (?) 
double insurance
 Note
Co-insurance
more than two different
contracts for insurance are
concluded for one subject-
matter insured, but the
amount insured does not
exceed the insurable value
Double insurance
Where two or more policies
are effected by or on behalf
of the assured on the same
subject matter insured and
maritime peril, and the
sums insured exceed the
insured value, the assured
shall be deemed to be over-
insured by double
insurance
Example

706022-Chapter 6-Cargo Insurance

 LO2
Marine Insurance
Marine insurance is a financial security to the cargo
which is being transported on seas and covers the
risks of physical loss or damage to goods and
merchandise while in transit
A contract of marine insurance is a contract whereby
the insurer undertakes to indemnify the assured, in
manner and to the extent thereby agreed, against
marine losses, that is to say, the losses incident to
marine adventure
 be extended so as to protect the assured against
losses on inland waters or on any land risk which may
be incidental to any sea voyage.
706022-Chapter 6-Cargo Insurance
Relationship between carriage contract
and marine insurance

706022-Chapter 6-Cargo Insurance

Types of Marine Insurance

Hull & Machinery Insurance (H&M)

Cargo Insurance
Liability Insurance (P&I)

706022-Chapter 6-Cargo Insurance

Marine Perils

Marine perils are perils consequent on, or incidental

to the navigation of the sea
Fortuity: cannot generally be foreseen or be prevented by
competence or by exercise of reasonable care by the
seaborne staff.
Consequent: lost of/ damage to

706022-Chapter 6-Cargo Insurance

Classification

Origin

Policy

706022-Chapter 6-Cargo Insurance

According to Origin

Natural disaster  an event Act of God

outside of human control or
activity  force majeure 
Perils of the sea
typically limit or remove
liability  Policy holders
should review their policy for Extraneous risk
coverages and exclusions
Tsunamis, earthquakes,
volcanic eruptions… Others
According to Origin

Reference to all risks Act of God

particular to the sea  Major
casualties
Perils of the sea
 Stranding, sinking,
collision, heavy wave action,
and high winds.… Extraneous risk

Others
 According to Origin

Other than the perils of the sea Act of God

 fire, explosion, war perils, pirates,
thieves, seizures, captures, restraints,
detainments, jettisons, procurements, Perils of the sea
requisitions, acquisitions by the
Government, illegal acts and any other
perils, either of the like kind or which Extraneous risk
may be designated by the insurance
contract
Others
 According to Origin

Other than the perils of the sea Act of God

 fire, explosion, war perils, pirates,
thieves, seizures, captures, restraints,
detainments, jettisons, procurements, Perils of the sea
requisitions, acquisitions by the
Government, illegal acts and any other
perils, either of the like kind or which Extraneous risk
may be designated by the insurance
contract
Others
 According to Origin

Inherent vice/ latent defect Act of God

the risk of deterioration of the
goods shipped as a result of their
Perils of the sea
natural behavior in the ordinary
course of the contemplated
voyage without the intervention Extraneous risk
of any fortuitous external
accident or casualty  exclusion
Others
 According to Origin
Ex: A specific example: A shipment of Act of God
gloves absorbed moisture prior to transit.
When the container entered a substantially
colder environment, the moisture condensed
and then settled causing stains "the loss Perils of the sea
arose from the natural behavior of the goods
as shipped in the ordinary course of the
contemplated voyage from POL to POD“  Extraneous risk
the insurer rightfully denied the claim under
an inherent vice exclusion.

Others
 According to policy
Grounding/ Stranding
Risks Covered
Sinking
Main (4)
Fire/ Explosion
Collision
Barratry
Missing ship Risks Required
Jettison
Theft, pilferage, non-delivery and shortage
(TPND)
Others: tear, breakage, bending and denting,
rust, stuffy, contamination, rain or fresh water, Risks Excluded
hook…
 According to policy
War risks  involves the employment of
force between states or entities Risks Covered
Civil war
Revolution, rebellion and insurrection
Civil strife arising therefrom
Any hostile act
Capture and seizure
Arrest, restraint or detainment Risks Required
Derelict mines, torpedoes, bombs or other weapons
of war
Frustration
Strike risks (SRCC)
Strikers, locked-out workmen or persons taking part
in labor disturbances Risks Excluded
Riot
Civil commotion
Any terrorist or political motive
 A separate policy
 According to policy
Not covered by an insurance policy:
Contraband Risks Covered
Brokade
Inherent vice or nature
Willful misconduct of the insured
Ordinary leakage/loss
Insufficiency or unsuitable of packing Risks Required
Proximately caused by delay
Insolvency or financial default of the owners
/ managers/ charterers or operators of the
vessel
Deviation Risks Excluded
Unseaworthiness and unfitness of vessel/
craft/ conveyance/ container or lift van
Marine loss

Any loss of/damage to the subject-matter insured

proximately caused by a peril insured against
compensation for losses not for risks

706022-Chapter 6-Cargo Insurance

Types of marine loss

Total loss
Measure of
indemnity
Partial loss
Marine
losses Particular
Insurable average
interest General
average

706022-Chapter 6-Cargo Insurance

 Total loss
Totally destroyed, lost, or Actual total loss
damaged to such an extent (ATL)
that it cannot be recovered
 100% physical loss or
loss of specie

Constructive
total loss
(CTL)
Actual Total Loss

An ATL occurs usually when the subject-matter

insured is either:
destroyed, or;
so badly damaged that it ceases to be a thing of the
kind insured  loss of specie
the Assured is irretrievably (permanently) deprived
of the insured property.
 the claim on the policy is for the full insured
value thereof.

706022-Chapter 6-Cargo Insurance

Actual Total Loss

Examples of loss of specie:

Metal goods intended for use in manufacture have
become damaged and are no longer fit for their intended
purpose.
Wood that has burnt and has turned into charcoal.
Examples of deprivation:
A ship is carried by a tidal wave and comes to rest inland
at a remote, inaccessible place from which neither the
ship, nor the cargo on board. The cargo may still be
perfectly sound but the Assured is irretrievably deprived
thereof

706022-Chapter 6-Cargo Insurance

Constructive Total Loss

A constructive total loss occurs when the subject-

matter insured:
 is reasonably abandoned because its actual total
loss appears to be unavoidable,
or (more frequently), in case the cost of repairs plus
the cost of salvage will exceed its insured value.

706022-Chapter 6-Cargo Insurance

 Notice of abandonment

In writing (Int’l: word of mouth)

With reasonable diligence after the receipt of reliable
information of the loss  VN: 180 days from the date on
which the assured was aware of events or 60 days from
the date of expiration of the insurance term to the extent
that the ship or any good is extorted or ownership
The abandonment is irrevocable once accepted
the insurer is entitled to take over the interest of
the assured
the insurer rejects  partial loss
706022-Chapter 6-Cargo Insurance
Partial Loss

The subject-matter insured has suffered loss or

damage but:
it still retains some measure of value, or;
only a part of it is lost or damaged, the rest being
sound
Measure of indemnity:
Agree the amount of depreciation (a % of value)
Damaged goods sold at auction sound market
value vs sale value
Reconditioned or repaired  the charges incurred

706022-Chapter 6-Cargo Insurance

Particular Average (PA)

A partial loss of the subject-matter insured, caused by a

peril insured against, and which is not a general
average loss  born by the owner of the lost, damaged
property only

706022-Chapter 6-Cargo Insurance

 General Average (GA)
A general average loss is a loss caused by or directly
consequential on a general average act. It includes:
a general average expenditure
a general average sacrifice
There is a general average act where any extraordinary
sacrifice or expenditure is voluntarily and reasonably
made or incurred in time of peril for the purpose of
preserving the property imperiled in the common
adventure
a general average contribution.
York-Antwerp Rules 2016
706022-Chapter 6-Cargo Insurance
General Average (GA)

706022-Chapter 6-Cargo Insurance

GA vs PA

GA PA
Benefit All interests Any of the interests

Reason Voluntary and Accidental or

intentional fortuitous

Result Expenditure and Loss or damage

sacrifice
Adventure A common maritime Whole voyage
706022-Chapter 6-Cargo Insurance
MV. EVER FORWARD

Evergreen said the move to declare

general average came in light of
the increasing costs arising from
the continued attempts to refloat
the 334 m long vessel. General
average means all parties involved
with the cargo will have to share in
the cost of the salvage operations.
Evergreen declared similar a year
ago with the Ever Given grounding
incident in the Suez Canal.

706022-Chapter 6-Cargo Insurance

MV. ZIM KINGSTON

On 1 October 2021, Zim

declared a General Average
incident in respect of the loss
and damage sustained in the
recent fire aboard the vessel
near Victoria, BC.

706022-Chapter 6-Cargo Insurance

 LO3
General Average Adjustment
L= Expenditure + sacrifice GA losses/damages/expenses

V= VGA - PA Contributory Value

L Apportionment of GA
ti  x 100 %
V
ci  vi x ti Contributory value

Ri= Ci - Li Balance in GA
 Example
A vessel which its value in sound condition is 9,150,000 USD
carrying 5 shipments: A, B, C, D, and E with the respective values:
600,000 USD, 2,500,000 USD, 3,000,000 USD, 2,000,000 USD,
and 500,000 USD. Freight was not collected at 50,000 USD. The
vessel on the way hit a rock and got wet. Shipments were damaged.
The vessel was repaired. Shipments were removed to make it
lighter. The costs of repair are as follows:
- Hull: 200,000 USD
- Engine: 50,000 USD
- Shipment A got wet and its commercial value was reduced at
100%
- Shipment E was thrown into the sea to make the vessel lighter
- Other costs: 45,000 USD
 GA adjustment? 706022-Chapter 6-Cargo Insurance
 Example
A vessel is valued at 2,000,000 USD and transported a shipment
with a value of 500,000 USD. The vessel was stranded. In order to
overcome this incident, the captain decided to throw some parcels
with a value of 65,000 USD. The captain also operated the vessel at
the fullest capacity which broke a system. The repairing cost of this
system was 34,600 USD. Other costs were 400 USD. GA
adjustment?

706022-Chapter 6-Cargo Insurance

 Exe.
A ship (the value of the ship in sound condition is $5,000,000)
carrying 5,000 tons of bulk cargo (The CIF value of the cargo is
$500,000, with the freight payable on loading and non-returnable in
any event) runs aground on rocks in a storm. Salvage tugs are
engaged on a daily-hire basis to assist the vessel to refloat. As part
of the refloating operation, part cargo is jettisoned and the ship’s
engines are used at full reverse power. The vessel is eventually
refloated and proceeds to a port of refuge under her own power. At
the port of refuge, the cargo is discharged and stored in a
warehouse while the ship goes into drydock for repairs to the hull
and then reloaded after the repairs have been completed. There is
no loss or damage to cargo as a result of unloading, storing or
reloading. After repairs, the vessel proceeded safely to destination
and the owners had declared General Average.
706022-Chapter 6-Cargo Insurance
 Exe.
The following loss/damage and expenses were incurred:
 Cost of salvage tugs $ 50,000
 Cost of repairs to the ship’s bottom $300,000
(Of this, $100,000 was caused when running aground and $200,000
was directly attributable to efforts to).
 Cost of repairs to ship’s engine (damage caused during refloating
operations) $ 25,000
 Discharge, storing and reloading at the port of refuge $ 25,000
 Wages and maintenance, fuel and stores and port of refuge
expenses allowable $ 50,000
 Quantity of cargo jettisoned 200 tons

706022-Chapter 6-Cargo Insurance

 Example
A ship which its value in sound condition is 1,100,000 USD
carrying 5,000 tons of bulk cargo with the CIF value of 1,000,000
USD (the freight payable on loading and non-returnable in any
event) runs aground on rocks in a storm. The following loss/damage
and expenses were incurred:
 Goods lost of 63,000 USD caused by entry of sea water into the
hold
 The cost of repairing the hull damage is 50.000 USD.
 As part of the refloating operation, part cargo (value of 150,000
Usd) is jettisoned and the ship’s engines are used at full reverse
power ( cost of repair to the engine of 45.000 USD)
 Cost of Salvage tug to assist the vessel to refloat: 3,700 USD
 The vessel proceeded safely to destination  GA adjustment?
706022-Chapter 6-Cargo Insurance
Further reading

• VN Maritime Code 2015

• Marine Insurance Act 1906
• York-Antwerp Rules 2016

706022-Chapter 6-Cargo Insurance