Chapter 4- Marine

Question 1

Who is included as having insurable interest for a marine cargo policy, and what documents can determine that?

Answer 1

1. Sellers
2. Buyers
3. Carriers
4. Financial institutions
   Terms of sale/contract and bills of lading

Question 2

Identify the two items a broker will normally focus on identifying under the Terms of Sale

Answer 2

1. The Incoterm under which goods are being shipped
2. The method of payment for goods

Question 3

Under incoterms, identify the three questions that address the issue of insurable interest

Answer 3

1. Point in transit in which the seller fulfilled obligation
2. Whether the buyer or seller is responsible for carriage from one point to another
3. Party responsible for insurance

Question 4

Explain the payment method “cash in advance”

Answer 4

The seller is paid in advance for goods and has no interest once goods are shipped. When payment is made, the sellers interest stops

Question 5

Explain the payment method “open account”

Answer 5

Essentially a charge account where payments are made regularly in specified intervals, and provided only for reliable customers. The sellers continue to have insurable interest and should seek their own insurance coverage

Question 6

Explain the payment method “draft”

Answer 6

Two types:

Sight draft
- paid immediately on presentation
Time draft
-future specified date of payment after presentation

The seller maintains insurable interest

Question 7

Explain the payment method “letter of credit”

Answer 7

The most common method for exports. Pending receipt of letter of credit, seller agrees to provide goods. The letter of credit is delivered, then goods are shipped when all terms are met. Seller takes docs to bank and requests payment.

Question 8

Why and how should the seller of goods protect their own interest?

Answer 8

Seller usually obtains insurance for the buyer, but they cannot rely on this to protect their interest and should purchase their own insurance. Payment of goods may be guaranteed in terms of sale but if the shipment is lost or damaged, the buyer may not pay.

Question 9

Identify three functions of Bills of Lading

Answer 9

1. Contract of carriage between shipowner and shipper
2. Receipt for the goods
3. Document of title to the goods

Question 10

How does the bill of lading function as a “contract of carriage”

Answer 10

It represents contractual undertaking between shipper and carrier.
It establishes extent of carriers liability
It indicates the route of shipment
Establishes party responsible for freight charges
Provides additional information

Question 11

Who is entitled to receive goods under
Straight bill of lading and,
Order bill of lading

Answer 11

Straight bill of lading: the cosignee only
Order bill of lading: others may take goods on cosignees behalf

Question 12

Identify how goods are valued under
- released bill of lading and,
- valued bill of lading

Answer 12

Released: no specific value declared, but international agreements hold carrier responsible for a specific amount (500 per package)
Valued: shipper declares the value of goods, and the carrier is responsible for that value

Question 13

Explain the storage conditions of
On deck bill of lading and,
Optional stowage bill of lading

Answer 13

On deck: goods stowed on deck at shippers risk. The carrier is only liable for loss due to gross negligence
Optional stowage: Carrier will choose where cargo is stowed

Question 14

Identify the purpose for:
- received for shipment bill of lading
- clean bill of lading

Answer 14

• received: evidence the goods are received by the carrier
• clean: carrier declares no indication of problems with condition of cargo at time of acceptance

Question 15

Identify the purpose of:
Count bill of lading
On board bill of lading

Answer 15

Count: shows number of units being shipped
On board: confirms receipt of goods and loaded on board of vessel

Question 16

Identify three losses for which carriers are not responsible at law to the shipper

Answer 16

Acts of god
Acts of war
Acts of public enemies

Question 17

Identify two types of cargo policies that can be purchased by shippers or cosignees

Answer 17

1. Individual policy or certificate
   -used for single irregular shipments
   -provides certificate stating coverage
2. Open policy
   -contract prepared in general terms, used for large volumes of shipments

Question 18

Identify 5 characteristics of an open policy

Answer 18

1. Sums are not stated on policy
2. Can be extended to insure goods of every description
3. There is automatic coverage
4. It can be issued with no specific expiry date
5. Premium rate is stated on the policy

Question 19

What are two advantages of an open policy?

Answer 19

Helps create long term business relationships between insurer and insured, and allows insurer to provide tailor-made protection

Question 20

The Valuation Clause provides method of determining value of goods and merchandise based on:

Answer 20

1. The amount of the invoice
2. All charges in the invoice
3. Prepaid, advanced, or guaranteed freight
4. Plus ten percent

Question 21

Explain the transit clause

Answer 21

• provides warehouse to warehouse coverage from the time the goods leave the shippers warehouse, to the destination

Question 22

Explain the “termination of contract or carriage” clause

Answer 22

coverage is terminated due to uncontrollable situations,
- terminated at a port or place other than the destination
- transit is otherwise terminated before delivery under conditions provided in the transit clause

Question 23

Explain the “change in voyage” clause

Answer 23

If the destination of the cargo is changed by the insured, the insurer will continue coverage as long as prompt notice is provided

Question 24

Explain “lost or not lost” provision

Answer 24

• coverage applies even if the property has already been lost at the time the policy is negotiated, provided the insured:
• did not know about the loss
• had no reason to suspect there’d be a loss

Question 25

Identify three exclusions common to marine cargo policies:

Answer 25

1. Strikes exclusion clause: loss or damage from strikes, lock outs, route, terrorism. ADD: institute strike clause. 2. War exclusion: excludes war loss ADD: institute war clause (should always be placed with cargo insurer) 3. Unseaworthiness and unfitness exclusion

Question 27

When “institute war clauses (cargo)” is added to remove the war exclusion, the cargo is insured from the time it is loaded until when?

Answer 27

1. Discharged over side at final port 2. After expiry of 14 days counting from midnight of the day of arrival at the final port.

Question 28

Identify three implied warranties common to ocean marine cargo insurance

Answer 28

1. Legality: implied that the venture is legal 2. No Delay: implied the voyage will start within a reasonable time (usually eliminated under cargo policies) 3. No Deviation: no deviation from direct or customary routes (deviation waiver clause is usually added)

Question 29

What are implied warranties and express warranties under marine cargo insurance?

Answer 29

Express warranty: the insured stipulates certain facts relating to the risk are true, or certain acts have been done Implied warranty: these do not appear on policies documents, but are understood by the parties to be present

Question 30

A warranty require exact compliance or the underwriter may avoid all liability unless:

Answer 30

1. Where owing to a change of circumstances, the warranty is no longer applicable 2. Where compliance would be unlawful owing to the enactment of subsequent law

Question 31

Identify the three types of total loss used in marine terminology:

Answer 31

1. Actual total loss: property is totally loss, or so damaged there is no value 2. constructive total loss: the cost of salvaging the cargo is too high 3. Total loss of a part: the total loss of one shippers cargo, without the loss to other shipments

Question 32

Explain two types of partial losses used in marine terminology:

Answer 32

1. Particular average: involves a partial loss to a specific shipment (can be covered) 2. General average: deals with the payment of losses voluntarily incurred for the safety of the venture - parties whose property was saved will contribute to losses of those whose property was sacrificed

Question 33

Identify 4 factors considered by underwriters when evaluating an application for cargo insurance

Answer 33

1. Carriers to be used in transporting - names/types of ships and general record of ship owner 2. Experience of shipowner or shipper and whether is includes operation similar to the one projected for policy. 3. Route over which the ship will operate, and the weather conditions at the time of year 4. The condition of the harbours into which calls will be made, and political situation in those areas

Question 34

List three concerns an underwriter may have with respect to the susceptibility of cargo to any inherent hazards

Answer 34

1. Damage three breakage, leakage, sweating, spontaneous combustion, rapid deterioration due to wetting, climatic conditions, 2. Theft and pilferage 3. Special trade conditions

Question 35

What are some recommendations that may be made to shippers concerning the methods of packing cargo?

Answer 35

1. Products be shipped in new, well constructed packaging 2. Using adequately patterned gummed tapes to detect tampering 3. Shrink wrapping, strapping and banding

Question 36

What kind of clients would need a “ocean marine hull insurance”

Answer 36

For clients who own, operate, or charter any kind of marine hull

Question 37

What is protection and indemnity insurance?

Answer 37

Insures ship owners for injury or damage caused whilst at sea and in operations contiguous to the sea. The amount of insurance provided is limited to the responsible parties own hull policy (running down clause) any losses greater than the amount of hull, will be covered under P&I coverage

Question 38

List 4 additional coverages provided by P & I insurance

Answer 38

1. Loss of life and injury to third parties 2. Pollution 3. Damage to fixed floating objects 4. Removal of wreck

Question 39

What values are considered when arriving at an agreed value in a marine cargo policy?

Answer 39

• Cost of goods • Freight charges • Insurance premium • Additional charges • Anticipated profit

Question 40

What is the purpose of the 10% addition in value allowed under a marine cargo policy?

Answer 40

To cover incidental or unforeseen costs such as: • Duties and taxes • Profit margin • Miscellaneous expenses