Cargo Insurance: Coverage, Exclusions and Policy Types

Cargo insurance can protect the insured value of goods against covered physical loss or damage during transportation. The protection depends on the policy wording, insured journey, nature of the cargo, packing and declared value.

Carrier or freight-forwarder liability is different. A carrier may be liable only when the claimant proves responsibility under the applicable transport contract and law. Compensation may also be limited by weight, package, cargo unit or another contractual measure.

Always review the actual policy or insurance certificate before shipping. The name of the coverage alone does not establish what will be paid.

Cargo Insurance and Carrier Liability Compared

Purchasing cargo insurance does not remove the need to notify the carrier when loss or damage is discovered. The insurer may require you to preserve recovery rights against responsible third parties.

Carrier Liability vs Cargo Insurance in 35 seconds

Carrier or freight-forwarder liability is not the same as cargo insurance. Watch this short explanation of liability limits, marine cargo coverage, policy exclusions, Institute Cargo Clauses and general-average protection.

What Cargo Insurance May Cover

Depending on the selected wording, cargo insurance may respond to covered physical loss or damage caused during the insured journey.

Potential insured events may include:

• Fire or explosion.
• Vessel grounding, sinking or capsizing.
• Collision or overturning.
• Entry of water under applicable wording.
• Jettison or washing overboard.
• Theft or non-delivery when included.
• Accidental handling damage when covered.
• General-average and salvage charges under applicable terms.

This list does not describe every policy. A risk is covered only when the policy wording includes it and no exclusion or condition prevents recovery.

Institute Cargo Clauses A, B and C

Many international cargo policies refer to Institute Cargo Clauses.

“All risks” is commonly associated with Clause A, but it does not mean every possible loss is covered. The policy exclusions, conditions and insured journey still apply.

War, strikes, riots and civil commotion may require separate clauses or extensions. Confirm these before departure when they are relevant to the route.

Common Cargo Insurance Exclusions

Depending on the policy, exclusions may include:

• Wilful misconduct by the insured.
• Ordinary leakage, loss of weight or wear and tear.
• Inadequate or unsuitable packing.
• Inherent vice or the natural characteristics of the goods.
• Delay, even when caused by an insured event.
• Insolvency or financial default in specified circumstances.
• Unseaworthiness or unfitness when the insured knew of the condition.
• Nuclear risks.
• War, strikes or civil commotion unless separately covered.
• Cyber-related events under applicable exclusions.

An exclusion does not apply identically to every policy. Read the wording issued for your shipment.

Packing and Cargo Insurance

Packing must be suitable for the goods, mode of transport, route and normal handling involved in the journey.

Before shipping:

• Confirm whether the policy imposes professional-packing requirements.
• Record how fragile or high-value goods were protected.
• Photograph the goods before and after packing.
• Retain packing invoices and specifications.
• Tell the insurer about unusual cargo characteristics.

Insurance does not replace adequate preparation. Damage caused by insufficient packing may be excluded.

How to Calculate the Insured Value

The insured value is not always limited to the supplier’s invoice value. Depending on the policy and commercial terms, it may include specified freight, insurance and an agreed uplift.

Confirm:

• Which costs form part of the insured value.
• The currency used.
• Whether expected profit can be included.
• Whether the policy applies average or underinsurance provisions.
• How used goods, samples or goods without a commercial sale are valued.

Do not deliberately understate the value. Underinsurance can reduce the amount recoverable, depending on the policy.

Cargo Insurance and Incoterms

Incoterms define responsibilities between seller and buyer, including which party must arrange insurance under CIF and CIP. They do not replace the insurance contract.

Under Incoterms 2020:

• CIF generally requires the seller to obtain the minimum cover described by Institute Cargo Clauses C or equivalent, unless the parties agree otherwise.
• CIP generally requires Institute Cargo Clauses A or equivalent, unless the parties agree otherwise.

CIF and CIP also separate the point where risk transfers from the destination to which transport and insurance are paid. The party buying the goods should obtain the certificate and verify that the insured journey, value and coverage match the contract.

For other Incoterms, the parties may still decide to arrange cargo insurance even when the rule does not require one party to insure for the other.

What Is General Average?

General average may be declared when an extraordinary sacrifice or expenditure is deliberately made to protect the shared maritime venture.

Cargo interests may be required to provide security before their goods are released, even if their own cargo was not physically damaged.

Check whether the policy covers:

• General-average contributions.
• Salvage charges.
• The security or guarantee process.
• Associated documentation requirements.

What to Check Before Purchasing Cargo Insurance

Review the following details:

1. Named insured and party entitled to claim.
2. Description and quantity of goods.
3. Insured value and currency.
4. Origin, destination and intermediate locations.
5. Start and end of coverage.
6. Modes of transport and transshipment.
7. Applicable Institute Cargo Clauses or other wording.
8. Deductible or franchise.
9. Exclusions and special conditions.
10. Packing and security requirements.
11. War, strikes and other extensions.
12. Claim notification procedure and deadlines.

Correct any errors before the goods begin the insured journey.

Cargo Insurance Claims

If goods appear lost or damaged:

1. Notify the insurer or claims representative promptly.
2. Record exceptions on the delivery receipt when damage is visible.
3. Notify the carrier or responsible party within the applicable period.
4. Photograph the goods, packaging, container and seals where relevant.
5. Take reasonable steps to prevent further loss.
6. Preserve damaged goods and packaging for inspection.
7. Do not dispose of evidence without authorization.
8. Submit the documents required by the policy.

Documents may include:

• Policy or insurance certificate.
• Bill of lading, air waybill or consignment note.
• Commercial invoice.
• Packing list.
• Delivery or outturn report.
• Photographs and survey reports.
• Repair or replacement estimates.
• Correspondence with carriers and other parties.

The applicable policy controls the process and deadlines.

Arrange Cargo Insurance With Your Shipment

You can get your freight quote online with iContainers and review the insurance services available for the shipment.

Before booking, confirm the coverage, insured value, exclusions, deductible and claims process. For the practical steps, read the shipping insurance checklist.