Freight insurance provides coverage for the risks that may arise during the transportation of the covered goods or items from one location to another by sea, land or rail. It protects the insured’s property interest against risks that may arise during transportation. The components of this interest arrangement include invoice costs of goods, freight costs (shipping fees), insurance rates, the anticipated profit, and additional expenses, if any.
Proximate Cause in Freight Insurance
This kind of insurance focuses on proximate cause, which is the decisive and dominating factor that determines whether a risk will materialize. Its direct relevance to the damage sets it apart from other causes. It might be challenging to discern the proximate cause, particularly in chain events with multiple causes. For instance, if a ship gets shot and later sinks because of a storm, the proximate cause of damage is not the storm, but the shooting. As you can see, risk does not always originate from the most recent cause, and in such cases, the dominant cause producing the risk takes precedence.
Types of Coverage in Freight Insurance
The insured cannot claim damages unless the relevant proximate cause is covered by the policy. Moreover, only cargo vehicles that carry goods will be covered in this type of policy.
The policy can offer coverage under three different categories:
a) Full Coverage: The cargo vehicle is fully insured against total and actual damage.
b) Basic Coverage: If a cargo vehicle is involved in an accident and suffers partial damage, the loss pertaining to the transported items is covered.
Partial damages included in basic coverage are as follows:
i) By sea: fire, explosion, stranding, sinking, burning, collision with another object in water, rescue and relief costs, complete loss of one or more parcels during loading and unloading
ii) By road: burning, crash, and collision of vehicle, fire, lightning, bridge collapse, overturning of trucks or trailers, derailment of the train
c) Extended Coverage: All risks that arise during transportation are covered, except for the limitations listed in the policy. The coverage is subject to Institute Cargo Clauses (A)1.1.82 for land, rail and sea freight, and Institute Cargo Clauses (Air) 1.1.82 for air freight.
The key exceptions to this coverage are as follows: damages arising from the nature and quality of the cargo (e.g. regular leaking), normal loss of weight or volume or wear and tear, improper carriage or packaging, hidden defects in the covered items, damages caused by delays, radioactive contamination, the insured’s malicious intent and intentional actions, war, strike, terror, turmoil, atomic or nuclear disintegration and/or fusion, or other similar reactions, or use of war weapons fired with radioactive power or substance, etc.
Types of Policies in Freight Insurance
a) Valued policy: This type of policy specifies all the details about the insured items before it goes into effect.
b) Floating policy: This type of policy eliminates the requirement to enter full information beforehand and offers a temporary solution until the missing information is filled in.
c) Subscription policy: This is an annual policy made with the insured, with an agreement being reached on a reasonable pricing tariff. It is often signed to insure all annual shipments of businesses. As a result, premiums may be more reasonable in consideration of the number of journeys.
d) Block policy: This policy offers a lower tariff in freight insurance rates for the items covered under the terms of an annual subscription agreement.
