Glossary

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Glossary of Marine Insurance Terms

GLOSSARY OF MARINE INSURANCE TERMS
ABANDONMENT

In Maritime Law, abandonment means the act by which the owner of a ship surrenders that ship and
freight to a trustee, or perhaps to another acting in a similar capacity, for the benefit of claimants. As this
term is used in connection with insurance, it means a relinquishment of insured property by the owner to
the insurer so that the owner may claim as for a total loss, when, in fact, the loss is total be construction
only. In this connection, see “Constructive Total Loss.”

ACTUAL TOTAL LOSS

Actual (absolute) Total loss is a total loss of the property insured due to the following reasons:

1. Complete loss or destruction of the property.

OR

2. Property has been damaged so badly that it has ceased to be a thing of the kind insured. (See
Constructive Total Loss)

OR
3. Irretrievable deprivement.

ALL RISK

There are several forms of “All Risk” Clauses. The aim in all cases is to provide broadest protection by
covering against physical loss or damage from any external cause suffered in transit. To establish a
claim under the policy, it is not necessary for the insured to prove what caused the loss. It is usually
sufficient for the insured to prove that a physical loss occurred, that the goods were in proper condition
and properly shipped and that the loss was not due to inherent vice of the goods.

Those risk expected by the Free of Capture and Seizure and Strikes, Riots and Civil Commotions clauses
are excluded.

(See F.C.&S. and S.R.&C.C. Warranty)

ASSAILING THIEVES

This term appears in the “Perils” Clause of a Marine contract, it means that such losses as are due to
thieves using force or violence would be covered.

AVERAGE
A word frequently used in Marine Insurance and simply means “loss” or “damage.”
(See General Average and Particular Average)

BARRATRY

This term means an act committed by the Master or members of the crew of a vessel for some unlawful or
fraudulent purpose and contrary to their duty to the owners of the ship and to the prejudice of the owner.
Barratry is a peril specifically stated in the Perils Clause of the policy.

BILLS OF LADING

A Bill of Lading is a receipt given by the carrier to the shipper for the property entrusted to his care for
transportation. It is also a contract between the carrier and the shipper, which sets forth the terms and
conditions under which the merchandise will be carried;

BOTH TO BLAME CLAUSE

The both to Blame Collision Clause appears in most steamship bills of lading. Under
its provision, the ship-owner reserves the right to require payment from the owners of the cargo he is
carrying by virtue of the ship-owner having to pay the other vessel for damages sustained by that vessel
or cargo thereon. The Marine Policy repays the insured for its proportion of such losses under the
following clause in the Company’s Open Cargo Policy.
Where goods are shipped under a Bill of Lading containing the so-called “Both to Blame Collision”
Clause, the Assurer agrees as to all losses covered by this insurance, to indemnify the Insured for this
policy’s proportion of any amount (not exceeding the amount insured) which the Insured may be legally
bound to pay to the ship-owners under such clause. In the event that such liability is asserted, the
Insured agree to notify Assurer who shall have the right at their own cost and expense to defend the
Insured against such claims.

CARGO

Goods, merchandise or commodities of every kind that may be carried on a vessel generally under a bill
of lading or baggage receipt can come within the definition of “Cargo”.

CARRIAGE OF GOODS BY SEA ACT

This is an act passed by Congress in 1936 which defines terms such as “carrier,” “contract of carriage,”
“goods,” “ship,” and “carriage of goods.” It covers in general the acts for which a carrier must be
responsible; his liability and relief from liability in connection with these responsibilities, and permits of
certain reasonable deviations. Two of the most important aspects of this act are the one-year time
limitation for filing suit against the ocean carrier, and the ship-owners limitation of liability to $500 per
shipping package or customary freight unit. This act applies to international commerce from the time the
goods are loaded on board the transporting vessel until discharge of the cargo, but does not apply to
domestic water shipments unless so stated in the bill of lading, nor to shipments being transported to or
from U.S. ports unless so elected by the ocean carrier.

CONSTRUCTIVE TOTAL LOSS

Where the property is not an absolute or actual total loss, but where it is so badly damaged or in such a
position that its total loss cannot be prevented except at an expenditure greater than its value would be
after such outlay has been incurred.

CONTINGENCY INSURANCE

As the term implies the coverage is dependent on the performance or non-performance of certain acts. It
is not direct primary insurance. It is most commonly granted in connection with shipments of cargo and is
solely for account of the insured.3
Examples: Guaranteeing collection of claim to an importer under a foreign policy covering a shipment
which he has bought on C.I.F. terms.
Guaranteeing collection of losses in event of non-payment of drafts to an exporter.
This is not credit insurance as in every case there must be a physical loss of or damage to the cargo
which is recoverable under the terms of the insurance, also the contingency against which the insurance
is granted must arises.

DIFFERENCE IN CONDITIONS

Occasionally a merchant who has an open policy covering all his importations will make a purchase from
a seller who sells only on his terms including insurance (C.I.F.) The merchant’s open policy will exclude
shipments so purchased and no question of double coverage will arise; but the insurance included in the
sales contract may be much more restricted than the insurance coverage to which the merchant is
accustomed. For example, his open policy may cover him on an “All Risk” basis, whereas the insurance
included in the sales contract may be on F.P.A. terms. In the circumstance, the merchant may take out
insurance on the merchandise to cover the difference between the coverage granted by his open policy
and that purchased under the sales contract. This is known as “Difference in Conditions” insurance. In
case of loss, two questions must be answered (1) Would the loss be collectible under the broader
coverage? (2) Is it collectible under the narrower? If the answer to question (1) is affirmative and to
question (2) it is negative, the loss falls on the “Difference in conditions” policy.

CONTRACT OF AFFREIGHTMENT

This is a legal term meaning the contract of carriage. As regards the ocean shipping transactions of
exporters and importers, this contract usually is expressed in the carriers bill of lading.

(See Bill of Lading)

CUSTOM HOUSE BROKER

A custom house broker is a person of firm employed by an importer to take over the responsibility of
clearing the importer’s shipments through Customs on fee basis. The Customs Broker must be licensed
by the Treasury Department in order to perform these services.

DEDUCTIBLE AVERAGE

Deductible Average is either a percentage of the insured value or specific amount which is deducted from
the total amount of claim.

DEMURRAGE

Refers to a compensation per day or per hour due to whomever may be concerned, for earnings which
are lost as a result of delay.
Although this is generally a term used in the charter (or leasing) of a vessel, the term is also used loosely
to refer to amounts which may be due because of storage of cargoes beyond the free time granted at port
facilities.

DEVIATION

When a vessel proceeds from her port of departure to her port of destination, but, by an unusual or
improper course, then there occurs what is termed “deviation”. Deviation and its consequences are dealt
with in several sections of the Marine Insurance Act (which see). Generally speaking, the underwriter is
relieved of liability from the deviation takes place. Therefore, policies usually contain a clause by which4
underwriters agree to cover the insured interest incase of deviation provided prompt notice is given and
additional premium is arranged, if required. For example, the following is the Deviation Clause found in
the Company’s Open Cargo policy:

DEVIATION CLAUSE

This insurance shall not be vitiated by any unintentional error in description of vessel, voyage or interest,
or by deviation, over-carriage, change of voyage, transshipment or any other interruption of the ordinary
course of transit, from causes beyond the control of the Insured. It is agreed, however, that any such
error, deviation or other occurrence mentioned above shall be reported to the Assurer as soon as known
to the Insured, and additional premium paid if required.

DUTY INSURANCE

This insurance covers the payments of the government on goods which arrive in the United States from a
foreign country. These goods remain in the custody of the customs officials until the importer or his
representatives secure possession of the merchandise through a procedure that is known as customs
entry. Import duties are paid according to the rates stated in the published tariffs, and are collected
whether the goods are in sound or damaged condition when received. Allowance, may be granted or
missing items in accordance with the applicable rules and regulations of the government.
In most instances the Cargo Open policy can be extended to cover import duty by endorsement. For
insurance purposes the amount to be insured is the actual duty paid and the premium is computed at a
separate reduced rate, usually 1/3 the Marine Rate.

F.C.& S. (FREE OF CAPTURE AND SEIZURE)

A clause embodied in the marine policy which excludes the coverage of enumerated war perils from the
marine contract. Certain of these war perils, however, can be covered separately under a War Risk policy
at additional premium.

FOREIGN FREIGHT FORWARDER

A Foreign Freight Forwarder is a person or firm whose services are employed by importers and exporters
for the efficient and economic dispatch or reception of goods to or from overseas destinations. Freight
forwarders generally arrange the necessary details for the proper shipping, insuring and documenting of
overseas shipments. It is common for freight forwarders to also act as costumes brokers and vice versa.

FRANCHISE

A provision in the contact of insurance which specifies a minimum of damage which must occur to the
property insured for the insurer to be liable; where such specified franchise is reached, the insurer then
becomes liable for all the damages suffered as a consequence of a peril insured against. The franchise
may specify a percentage of the value or a specific amount and may be made applicable to the whole
shipment or to parts as designated.

FREE OF PARTICULAR AVERAGE

Shipments insured under Free of Particular Average conditions have limited protection only, as can be
seen from the clauses below:

FREE OF PARTICULAR AVERAGE (AMERICAN CONDITIONS)

Warranted free from Particular Average unless caused by the vessel or craft being stranded, sunk, burnt
or in collision.5

FREE OF PARTICULAR AVERAGE (ENGLISH CONDITIONS)

Warranted free from Particular Average unless the vessel or crate be stranded, sunk, burnt or in collision.
Under the American conditions besides providing for General Average and Salvage charges and total
loss due to a peril insured against, partial losses to the goods are payable only when reasonably the
result of stranding, sinking, burning or collision of the carrying vessel.
The English conditions also provide for General Average and Salvage charges and total loss due to peril
insured against, but partial losses to the goods are payable if the carrying vessel strands, sinks, burns or
in collision. The loss to the goods does not need to have been caused by the casualty – it is only
necessary for such a casualty to have taken place.
It is worth mentioning that that once the warranties in the above clauses have been opened, the coverage
then is expanded to include those Perils insured against in the Perils Clause of the Policy (See clause
number 10 of the attached specimen cargo policy).

FREIGHT (PREPAID, GUARANTEED, COLLECT)

Freight as used in marine insurance is money which is paid to a vessel owner for the carriage of goods or
to any common carrier or the transportation of property by rail or water.
Prepaid freight is paid in advance and is not returnable even though the vessel or cargo is lost.
Guaranteed freight is not paid in advance but is payable in full whether the vessel be lost or not lost.
Collect freight is payable only on the delivery of the cargo at destination.
General Average is a contribution by all the parties in a sea adventure to make good a loss sustained by
one of their number on account of sacrifices voluntarily made of part of the ship or cargo to save the
residue and lives of those on board from impending peril, or for extraordinary expenses necessarily
incurred by one or more of the parities for the general benefit of all the interests embarked in the
enterprise.

GENERAL AVERAGE

To give rise to a General Average there must first be the following consideration:
1. A peril which threatens the whole adventure but not necessarily all interests to the same degree
2. A sacrifice, either physical or in the form of unusual expenses incurred
3. A measure of success, for if nothing is saved there is nothing to contribute
The protection afforded the insured by his insurance policy with respect to General Average assessments
is largely dependent upon the extent to which he has insured his property. If the insured value equals or
exceeds the sound value which was formed the basis for the contributory value, the underwriter will pay
the General Average assessment in full otherwise the underwriter will pay only in the proportion borne by
the insured value to the sound value to the sound value.
These payments made by the underwriter are not affected by any clauses dealing with particular average.
(See definition of Particular Average)

HARTER ACT

An Act of Congress approved February 13, 1893 relating to navigation of vessels, bills of lading and to
certain obligations, duties and rights in connection with the carriage of property while aboard vessel.

HAMBURG RULES 1978

Proposed by the United Nations mission on Trade in Developing Nations. Makes the carrier Liable for all
damages up to the value of the goods. The rules require the signature of 20 nations to be ratified. This
legislation is generally opposed by nations with strong maritime interests like the USA.

HEAVY WEATHER

A peril of the Sea resulting from the tempestuous action of the forces of nature causing wind and wave
forces Beaufort Scale 9 (41-47 knots or above). It is not necessary that the resultant loss be an
immediate effect of wind and waves; but may be a consequential loss occasioned by undue stress on the
vessel. The Master of the vessel can file a “protest” and absolve the vessel of liability as enumerated in
C.O.G.S.A

INCHMAREE CLAUSE

The Inchmaree Clause (name derived from a test case involving the SS “Inchmaree” where principle of
law established) appears in the basic Marine Cargo Policy (see Clause 25 of the Company’s Open Cargo
Policy).
This insurance is also specially to cover any loss of or damage to the interests insured hereunder through
and bursting of boilers, breakage of shafts or through any latent defect in the machinery, hull or
appurtenances, of from faults or errors in the navigation and/or management of the vessel by the Master,
Mariners, Mates, Engineers or Pilots.

IRRESPECTIVE OF PERCENTAGE (I.O.P)

In contrast to “Franchise” which provides that loss or damage to cargo due to a peril insured against is not
collectible unless such loss or damage exceeds a certain percentage or specified amount of the value of
the goods, “Irrespective of Percentage” provides that all loss or damage to cargo due to a peril insured
against is collectible in full.

JASON CLAUSE (NEGLIGENCE GENERAL AVERAGE CLAUSE)

A clause inserted in ocean bills of lading which, in effect, provides that where a ship-owner complies with
the requirements of due diligence as provided by the Carriage of Goods by Sea Act of 1936, any general
average will be borne proportionately by ship, freight and cargo, expecting only a general average
situation resulting directly from the unseaworthiness of the vessel. Although the wording may vary
somewhat on individual bills of lading, the most common form is as follows:
“In the event of accident, danger, damage, damage or disaster, before or after commencement of the
voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the
consequence of which the carrier is not responsible, by statute, contract or otherwise, the goods,
shippers, cosignees or owners of the goods shall contribute with the carrier in general average to the
payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred,
and shall pay salvage and special charges incurred in respect of the goods.”

JETTISON

The throwing overboard of part of the vessel’s cargo or the cutting away and casting away of masts,
spars, rigging, sails or other furniture for the purpose of relieving the vessel in an emergency. Jettison is
a peril insured under the Marine Open Cargo Policy. If the jettison is made for the common safety in time
of peril, the loss which results is treated as General Average.

MARINE EXTENSION CLAUSES

The American Institute Marine Extension Clauses originated during World War II to give the insured
continuous protection in the case of deviations, delays or other variations of the contemplated voyage
because of wartime shipping conditions. After the cessation of hostilities these clauses have continued in
force, providing automatic continuation of coverage at no additional premium when the course of transit is
interrupted or suspended due to circumstances beyond the control of the insured.
Clause I broadens the protection originally afforded under the warehouse-to-warehouse Clause by
omitting any reference to “the ordinary course of transit” and covers the goods form the time they leave
the warehouse for the commencement of transit until delivered to the final warehouse. This clause,
however, must be read in conjunction with Clause VII i.e., it is a condition of this coverage that there shall
be no interruption or suspension of transit unless due to circumstances beyond the control of the insured.
Clause II specially covers the goods during deviation. Delay and other variations of the venture. It must
be emphasized that any delay which is deliberately brought about or could be avoided by the insured is
not covered.
Clause III automatically protects the insured if the contemplated voyage cannot be completed and is
terminated at a port or place other than the original destination. In such cases the coverage continues
until the goods are sold and delivered at such other port or place, or alternatively, reforwarded from there
to the original destination or a substituted destination.
Under the preceding three clauses there is no time limit and the insured is covered at no additional
premium, no matter how long the goods are delayed in reaching their destination.
Clause IV deals with the cessation of protection in cases where the goods are resold by the insured (for
reasons other than specified in Clause III) and are to be forwarded to a destination other than that
originally covered by this insurance.
Clause V provides that change of voyage (by the insured) and errors of omissions in the description of the
interest, vessel or voyage are “held covered” at an appropriate additional premium to be arranged.
Clause VI emphasizes that the extension afforded under the Marine Extension Clauses does not alter the
exclusion of loss, damage or expense proximately caused by delay or inherent vice or nature of the
subject matter insured.
In other words, the insurance is extended to cover during delay, etc., and not against losses caused by
delay.
Clause VII as stated before is of foremost importance and makes clear that no extension of coverage is
afforded unless the course of transit is interrupted or suspended due to circumstances beyond the control
of the insured.

MARINE INSURANCE ACT

This Act passed by Parliament in 1906 is the controlling law of England with respect to Marine Insurance.
By codifying certain practices and rules within the text of this law, marine policies issued in England can
be written usually with less verbiage than found in our policies since we do not have a similar law. For
example, the Act deals with such subjects as Insurable Interest, Disclosure and Representations, the
Policy of Insurance, Warranties, the Assignment of Policy, Loss and Abandonment, etc.

NON-DELIVERY

Non-delivery occurs when a carrier does not deliver the full number of package for which he has issued a
receipt. Coverage against non-delivery of an entire shipping package may be added by endorsement.8
As non-delivery may arise from theft, it is usual to include Theft and/or Non-Delivery of an entire shipping
package as one coverage.

OPEN CARGO POLICY, MARINE

Is a contract which has no predetermined termination date, although it may be cancelled by either the
insured or the underwriter.
The underwriter agrees to insure all shipments (which may be at the insured’s risk) within the terms and
conditions of the policy, at agreed rates.
The insured undertakes to declare all such shipments to the underwriter.
The policy is an Open Policy in the proper sense of the term as the values of the individual shipments
cannot be known in advance. The open policy becomes a valued policy insofar as the individual
declarations are concerned when the amounts of those declarations are made in accordance with the
valuation clause in the open policy.
The policy includes a valuation clause (see valuation clause) so that all shipments will be valued on a set
basis.
The policy also includes a limit or maximum amount which the underwriter is willing to insure on any one
conveyance.

PARTICULAR AVERAGE

Is a “loss less than total” or simply “partial loss.” This explanation may be rather misleading the layman,
unless qualified to the effect that not each and every partial loss of cargo, but only partial loss caused by
a sea peril is Particular Average. Wherever the words “Particular Average” or “Average” appear in a
policy they are deemed to mean partial sea damage to the goods or merchandise insured i.e., loss or
damage, less than total, accidentally and fortuitously caused by:
a) sea – water or b) violent action of the sea or c) an accident or casualty of the sea, and shall not be
construed to include loss or damage from other causes unless specifically mentioned in the policy and
insured against.
The decisive factor in establishing whether or not a partial loss can be considered as Particular Average,
therefore, is the determination of the proximate cause, and not the description of the nature of the
resulting damage. Thus, for instance, breakage of an article caused by the collision of the vessel is
Particular Average, while breakage resulting from rough handling is not Particular Average, as in the latter
case the cause is not a sea peril.
PERILS OF THE SEA
These are the general words used in the Perils Clause (Clause 10 of Company’s Marine Cargo Open
Policy) to include losses which are the result of the unusual action of the forces of nature operating in and
about navigable waters. (Under the wording used in the policy, we do not cover all perils which may
overtake the venture on the sea). For example, opening of seams caused by heavy weather resulting in
sea water damage to cargo, tempestuous action of the waves, causing a vessel to be battered by the
force of the sea, stranding of reefs, rocks and shoals, contact with floating objects such as logs or
icebergs, are considered “Perils of the Sea”.

PILFERAGE

Disappearance of a part or all of the contents of a shipping package with evidence that package has been
violated. This coverage may be added by endorsement.

P.P.I (POLICY PROOF OF INTEREST)

This term indicates an agreement by the insurer with the insured that the existence of the policy of
insurance proves the interest of the insured in the subject matter. In fact, such an agreement is made
only in cases where the subject matter of the insurance is such as to make it extremely difficult for
documentary evidence or proof to be furnished as to the policyholder’s insurable interest. In its
application, such an agreement is similar in effect to, and is used in conjunction with F.I.A. (Full Interest
Admitted) Agreement.

PROXIMATE CAUSE

In determining whether or not a loss is recoverable under a marine policy, it is the proximate not the
remote cause which determines whether or not claim is recoverable under the policy. In other words, it is
the cause which immediately precedes and produces the loss, as distinguished from any other remote or
removed causes which may be involved.

SALVAGE AWARD

Is the sum awarded to salvors for saving property endangered in a maritime adventure.

SALVAGE CHARGE

This is the cost incurred is saving or reclaiming cargo or vessel after an accident. Such charges, if falling
within the terms and conditions of the policy, are recoverable thereunder.

SALVOR

One who saves or assists in the saving of a vessel or property from loss at sea.

S.R. & C.C. WARRANTY (STRIKES, RIOTS AND CIVIL COMMOTIONS)

A warranty (see below) embodied in the marine policy which excludes liability for losses resulting from the
acts of strikers, locked-out workmen, or persons taking part in labor disturbances or riots or civil
commotions or for losses which are directly caused by persons acting maliciously. This warranty may be
waived by adding the S.R. & C.C. Endorsement to the policy and paying additional premium thereon.
“Warranted free loss or damage caused by or resulting from strikes, lockouts, labor disturbances, riots,
civil commotions, or the acts of any person or persons taking part in any such occurrence or disorders.”

SUBROGATION

The right by which the insurance company upon payment of a loss succeeds to all the claimants’ rights to
recovery from any third party. As the statute of time limitations for commencing recovery proceedings
against carriers are rigidly applied, it is important that the insured be aware of his obligation to file suit
within the legally prescribed time.

SUBROGATION RECEIPT

A receipt executed by the claimant (on payment of loss) which assigns his right, to recover from any third
party, to the insurance company.

SUE AND LABOR AND WAIVER CLAUSE

The following clause appears in the company’s Cargo Policy and is found in all marine contracts:
In case of any loss or misfortune, it shall be lawful and necessary to and for the Insured, his or their
factors, servants and assigns, to sue, labor and travel for, in and about the defense, safeguard and
recovery of the said goods and merchandise, or any part thereof, without prejudice to this insurance; to
the charges whereof, the Assurers will contribute according to the rate and quantity of the sum hereby
insured; nor shall the acts of the insured or assurers, in recovering, saving and preserving the property
insured, in case of disaster, be considered a waiver or acceptance of an abandonment.
The provisions of this clause become operative only after loss or misfortune has arisen and is an
agreement that the insured shall perform the duty of saving and preserving the property (as if he were
uninsured). Furthermore; while the Company has no direct recourse against third parties who may
contribute to or be responsible for the loss, the company is enabled to hold the insured to this agreement
that the insured will take necessary measures to protect and enforce his legal rights as respects the
damaged property. The waiver portion of the clause protects both the position of the insured and the
Company in the event they take steps to save or preserve the property.

THEFT (SEE NON-DELIVERY)

Disappearance of shipping unit with evidence that it has been stolen. To remove ambiguities,
underwriters generally use the term “Theft of an entire shipping package only”. This coverage may be
added by endorsement.

VALUATION CLAUSE

A Valuation Clause in the marine policy contains a fixed basis of valuation agreed upon by the Insured
and Company and which establishes the insured value of the merchandise. The following is a typical
Valuation Clause which may be found in Cargo Policy:
“Insured shipments are valued at amount of invoice (including all charges in the invoice), plus any prepaid
or advanced or guaranteed freight not included in the invoice plus ____%
of the sum of the foregoing items, unless otherwise provided by endorsement hereto. Foreign currency to
be converted into U.S. dollars at Banker’s sight rate of exchange applicable to each invoice and/or credit
and/or draft.
There is a high degree of importance attached to the use of this clause, since it will determine the amount
payable under any recoverable loss or General Average contribution. Therefore, in order to achieve
proper indemnification as respects the value, it is necessary that the individual shipments declared, be
properly valued.

VALUED POLICY
CARGO

A valued policy is one in which the value of the property to be insured has been agreed upon between the
insured and the underwriter. The Open Cargo Policy contains a valuation clause which provides a set
method of determining insured values on all shipments declared under it. Therefore, the open cargo
policy is a valued policy insofar as the individual shipments are concerned. In the event of loss,
recoverable losses are payable in full up to the amount insured. Naturally, if only a percentage of the
value (as per the valuation clause) is insured, then only a like percentage of the loss would be payable.

WAREHOUSE-TO-WAREHOUSE CLAUSE

This clause defines at what point the insurance attaches on individual cargo shipments, under what
circumstances it continues in force and finally, when it ceases. The goods are covered from the time they
leave the warehouse or store of the shipper for the commencement of the transit and coverage continues
during the ordinary course of the transit including customary transshipment, if any, until the goods are
discharged overside from the overseas vessel at the final port. After discharge of the goods from the
overseas vessel, the insurance continues while the goods are in transit or awaiting transit and it ceases
when the goods are delivered to the final warehouse at the destination. A time limit, however, is imposed
on the time allowed for transit after discharge of the goods from the overseas vessel. If the final
destination is located within the limits of the port of discharge, the time limit is 15 days; if it is outside the
limits of such port, 30 days are allowed. If the time limit is exceeded due to circumstances beyond the
control of the insured, he is “held covered” at an additional premium provided that he gives prompt notice
to the Company of such and event.
The Warehouse-to-Warehouse Clause is conditioned by the words “ordinary course of transit.” In other
words, if the ordinary course of transit is interrupted, the coverage ceases to be in force unless the
insured gives prompt notice to the Company and pays an additional premium, if required. Important.
Likewise, are the words “in transit and/or awaiting transit.” Thus, after discharge, coverage ceases if
goods are held by the insured or the consignee or piers, custom sheds or other storage places by any
reason other then awaiting further transit facilities. The 15 and 30 day periods should, therefore, be
considered as definite limitations and not as “free time.”
The strict requirements of the Warehouse to Warehouse Clause have, however, been modified by the
Marine Extension Clauses.

WITH AVERAGE

A common “With Average” Clause reads:
“Free of Average under 3%, unless general or the vessel be stranded, sunk, burnt, on fire or in collision
with any substance other than water, each case or, shipping package separately insured. “The above”
With Average” Clause provides that partial losses resulting from sea perils are recoverable in full if they
amount to 3% (or other percentage as specified) or more on each case or shipping package (or other unit
as specified). If the vessel has been stranded, sunk, burnt, on fire or in collision, the percentage
requirement is waived and partial losses from sea perils are recoverable without regard to percentage.
The “With Average” Clause like the “Free of Particular Average” Clause deals only with losses resulting
from Perils insured against in the basic perils clause.

WARRANTY

In Marine Insurance we are accustomed to dealing with three general types of warranties, i.e.:
1. Exceptive Warranties which exclude from coverage under a policy certain losses or certain causes of
loss, e.g.:
– Warranted free from Particular Average unless the vessel or craft be stranded, sunk or burnt, etc.
– Warranted free from capture, seizure, etc.
2. Express Warranties – a condition whereby the insured guarantees the existence of a fact or its
nonexistence at the time the policy attached or guarantees that something shall or shall not be done
during the currency of the risk! This warranty may appear in the policy or in some document attached
to the policy or incorporated therein by reference, e.g. Bailee Clause, Company’s Cargo Policy:12
“Warranted that the Insured has not made and will not make before or after any loss or damage any
waiver or special agreement with any carrier or bailee who shall have the custody of any goods hereby
insured, releasing such carrier or bailee from its or his common law or statutory liability.”
3. Implied Warranties – Fundamental conditions which are implied in a contract of Marine Insurance and
are not stated in the policy contract, e.g.:
– The adventure must legal.
– The vessel must be seaworthy when the risk commences.

THE WARSAW CONVENTION

The Warsaw Convention, signed in 1929 and in general agreement among 92 participating countries by
1960, formulated a certain uniformity of air law made necessary by the extreme mobility and frequent
international movement of aircraft. A basic provision provided that the carrier would be liable for accident
to passengers or goods, unless he proved that all necessary and possible measures were taken to avoid
the accident. Except in cases of willful misconduct, liability would be limited to specified maxima. It also
contained provisions relating to the form and legal aspects of air transport documents .Amended in 1966
Liability for cargo stands at $20 per kilo about $9.07 per lbs. or if full valued declared and tariff is charged
then up to the actual damages suffered

YORK-ANTWERP RULES

A code of rules used as a basis for adjustment of General Average cases. These rules came about
through efforts of various Maritime countries to reconcile the differences in laws pertaining to General
Average which exist in these countries. Associations of Average Adjusters organized in this and other
countries have adopted rules for adjustment of General Average cases but none of these rules changes
the law of General Average as developed in the various countries. The York-Antwerp Rules when agreed
to by the parties interested in the adjustment become a basis for the adjustments but where the rules do
not cover any point involved, the law of the land or customs of the port where the adjustment is to be
made prevails.

FINANCIAL & SHIPPING DOCUMENTS

Set forth below are notes on some of the most common documents and terms used in the foreign trade.
However, it must be emphasized that the notes are by no means complete and should further clarification
be required, it is suggested that a commercial bank be contacted.

CONSIGNMENT

In many instances exporters have subsidiaries, agents or residents salesman in the principal commercial
centers of the world to whom they ship goods on consignment, with instructions to sell the merchandise
while afloat or after arrival, at an agreed price or at the highest price possible. The drawback to this
method is that no contractual obligation is created.
Consignment shipments, if made, should be confined to countries which do not have onerous exchange
restrictions otherwise the importer, once he has disposed of the goods, may find it difficult to convert local
currency into dollars for return to the United States.

CONSULAR INVOICE

Consular Invoice is a document, similar in nature to a commercial invoice on which certain specific facts
regarding shipment of goods between foreign nations must be declared to consular official of the country
to which the merchandise is consigned. Consular approval of this document indicates that the shipment
has been made in proper form, that the price for custom purposes is fair and that the rules and
regulations respecting such shipments have been complied with. Approval of the consular invoice13
permits the legal entry of the merchandise into the country of destinations; disapproval does not permit
the legal entry of the goods.
It should be noted, however, that not all nations require consular invoices to be issued as a prerequisite
for the entry of goods from other foreign countries. In such cases, however, the country of importation
usually has other rules and regulations which must be complied with either by the shipper or the
consignee before entry can be made. It should also be recognized that some countries will not allow the
importation of goods unless an import permit or license (Exchange Control feature has also been issued).
In such cases, the import permit or license as well as the consular invoice is a prerequisite for the legal
entry of the merchandise.

DOCK RECEIPT

A Dock Receipt is a document given by the carrier for property entrusted to his care by a shipper. This
receipt acknowledges that the property is in the carrier’s custody on the dock pending transportation and
is subject to all the terms, conditions an exceptions contained in the carrier’s regular form of bill of lading
which is issued at a subsequent date when the property is assigned for transportation aboard a specific
steamer.

DRAFTS

1. CLEAN DRAFT
At times, exporters, for one reason or another, forward shipping documents directly to the buyer or an
agent abroad and send a clean draft (draft unaccompanied by documents) to their bank for collection.
2. DOCUMENTARY DRAFT
Documentary draft is the same as a clean draft except that shipping documents are attached.
3. SIGHT DRAFT
A Sight or Demand draft is payable upon presentation to the drawee. The draft is to be presented to the
drawee as soon as it is received by the foreign bank and payment is to made immediately upon
presentation. A sight draft is in practice a C.O.D. presentation.
4. TIME DRAFT
A Time Draft is one payable after a specified number of days. If a draft is so drawn the bank will accept
draft for payment at maturity and return the accepted draft to the presenter.
FULL VALUE BILL OF LADING
A bill of lading under which the transporting carrier agrees for an additional charge to increase the amount
for which he may be liable up the declared value.

INCOTERMS

The word “Incoterms” is an abbreviation of international commercial terms, and the chosen Incoterms is a
term of the contract of sale. (It is not a term of the contract of carriage.)
Trade terms are, in fact key elements of international contracts of sale, since they tell the parties what to
do with respect to:
– Carriage of goods from seller to buyer and
– Export and import clearance14
– They also explain the division of costs and risks between the parties
The different nature of the trade terms can be evidenced by grouping the terms into 4 main categories
using the first letter as an indication of the group to which the term belongs.
• Group E EXW This first group has only one term and represents the seller’s minimum
responsibility since they only have to place the goods at the disposal of the buyer.
• Group F FCA, FAS, FOB The letter F signifies that the seller must hand over the goods to a
nominated carrier free of risk and expense to the buyer. The Main Carriage Unpaid.
• Croup C CFR, CIF, CPT, CIP The letter signifies that the seller must bear certain costs even after
the critical point for the division of the risks of loss of or damage to the goods has been reached.
Main Carriage Paid.
• Group D DAF, DES, DEQ, DDU, DDP The letter D signifies that the goods must arrive at a stated
destination.

INVOICE

An invoice is a commercial document which sets forth the terms and conditions of the sale of goods; the
invoice lists the goods sold, the quantity, the price per unit, the party or parties to whom the goods are
sold and depending upon the terms of sale, the charges for freight, insurance and other services
performed.

LETTER OF CREDIT

The letter of credit is probably the most widely used method of financing both export and import
shipments. It permits the seller to obtain credit in financing the transaction by using the purchased goods
as security, and it provides the cheapest way of financing the movement and distribution of goods.
In establishing a letter of credit, the buyer applies to his own bank for a specified amount in favor of the
seller. The particular form used and the variations in details in any particular case depend of course on
the terms of sale which have already been agreed upon by the buyer and the seller. The buyer stipulates
the documents which the foreign seller must attach to drafts against his credit, the duration of the credit,
the tenor of drafts which may be drawn, on whom they may be drawn, when shipments are to be made,
and all other particulars in the transaction.
This means of obtaining payment affords the highest degree of protection and has assumed important
proportions over the years. Although there are several categories of letters of credit, the most commonly
used, and also the most desirable, is the irrevocable letter issued by the buyer’s bank and confirmed by
the seller’s bank.

OPEN ACCOUNT

The procedure on sales abroad on an open account basis is similar to that which applies to sales in the
domestic market, i.e. sales are made without any safeguards, with the expectation that the buyer will
make payment at the expiration of a period previously agreed upon. The practice does not normally
prevail in foreign trade, but some use is made of it, particularly when exporters have had relations of long
standing with good buyers in nearby or long-established markets, or when sales are made to a branch or
subsidiary of the exporter. The main objection to Open Account sales is the absence of a contractual
obligation.15

TERMS OF SALE
C. & F. (COST AND FREIGHT)

Where merchandise is sold on a C. & F.. basis, the selling price includes the cost of the goods and the
freight to the named point of destination. Under this quotation – C. & F. (named point of destination)

Seller must

1. provide and pay for transportation to named point of destination;
2. pay export taxes, or other fees or charges, if any, levied because of exportation;
3. obtain and dispatch promptly to buyer, or his agent, clean bill of lading to named point of destination;
4. where received-for-shipment ocean bill of lading may be tendered, be responsible for any loss or
damage, or both, until the goods have been delivered into the custody of the ocean carrier;
5. where on-board ocean bill of lading is required, be responsible for any loss or damage, or both, until
the goods have been delivered on board the vessel;
6. provide, at the buyer’s request and expense, certificates of origin, consular invoices, or any other
documents issued in the country of origin, or of shipment, or of both, which the buyer may require for
importation of goods into country of destination and, where necessary, for their passage in transit
through another country.

Buyer must

1. accept the documents when presented;
2. receive goods upon arrival (named point of destination), handle and pay for all subsequent movement
of the goods, including taking delivery from vessel in accordance with bill of lading clauses and terms;
pay all costs of landing, including any duties, taxes, and other expenses at named point of
destinations;
3. provide and pay for insurance, (if desired);
4. be responsible for loss or damage to goods, or both, from time and place at which seller’s obligations
under (4) or (5) above have ceased;
5. pay the cost of certificates of origin, consular invoices, or any other documents issued in the country
of origin, or of shipment, or of both, which may be required for the importation of goods into the
country of destination and, where necessary, for their passage in transit through another country.
C.I.F. (COST, INSURANCE & FREIGHT)
Where merchandise is sold on a C.I.F. basis, the selling price includes the cost of the goods, insurance
coverage and freight to the name point of destination. Under this quotation C.I.F. (name point of
destination)

Seller must

1. provide and pay for transportation to named point of destination;
2. pay export taxes, or other fees or charges, if any, levied because of exportation;
3. provide and pay for marine insurance;
4. provide war risk insurance as obtainable in sellers
5. market at time of shipment at buyer’s expense, unless seller has agreed that buyer provide for war
risk coverage;
6. obtain and dispatch promptly to buyer, or his agent, clean bill of lading to named point of destination,
and also insurance policy or negotiable insurance certificate;
7. where received-for-shipment ocean bill of lading may be tendered, be responsible for any loss or
damage, or both, until the goods have been delivered into the custody of ocean carrier;
8. where on-board ocean bill of lading is required, be responsible for any loss or damage or both, until
the goods have been delivered on board the vessel;16
9. provide, at the buyer’s request and expense, certificates of origin, or of shipments, or both, which the
buyer may require for importation of goods into country of destination and where necessary, for their
passage in transit through another country.
*In some countries the trade rules do not make it necessary that the seller provide War Risk Insurance.
In such cases this coverage is only arranged by the seller at the specific request of the buyer.

Buyer must

1. accept the documents when presented;
2. receive the goods upon arrival, handle and pay for all subsequent movement of the goods, including
taking delivery from vessel in accordance with bill of lading clauses and terms; pay all cost of landing,
including any duties, taxes, and other expenses at named point of destination;
3. pay for war risk insurance provided by seller, (as well as marine insurance);
4. be responsible for loss of or damage to goods, or both, from time and place at which seller’s
obligations under (6) or (7) above have ceased;
5. pay the cost of certificates of origin, consular invoices, or any other documents issued in the country
of origin, or of shipments, or both, which may be required for importation of the goods into the country
of destination and, where necessary for their passage in transit through another country.
DELIVERED EX QUAY
Where merchandise is sold on an “Delivered Ex Quay” Sale basis, the selling price includes the cost of
goods and all additional costs necessary to place goods on the dock at the named port of importation,
duty paid, if any, Under this quotation, “Delivered Ex Quay” (named port of importation), the

Seller must

1. provide and pay for transportation to named port of importation;
2. pay export taxes, or other fees or charges, if any, levied because of exportation;
3. provide and pay for marine insurance;
4. provide and pay for war risk insurance, unless otherwise agreed upon between the buyer and seller;
5. be responsible for any loss or damage, or both, until the expiration of the free time allowed on the
dock at the named port of importation;
6. pay the cost of certificates of origin, consular invoices, legalization of bill of lading, or any other
documents issued in the country of origin, or of shipment, or of both, which the buyer may require for
the importation of goods into the country of destination and, where necessary, for their passage in
transit through another country;
7. pay all cost of landing, including wharfage, landing charges, and taxes, if any;
8. pay all costs of customs entry in the country of importation;
9. pay customs duties and all taxes applicable to imports, if any, in the country of importation, unless
other-wise agreed upon.

Buyer must

1. take delivery of the goods on the dock at the named port of importation within the free time allowed;
2. bear the cost and risk of the goods if delivery is not taken within the free time allowed.

F.A.S. (FREE ALONG SIDE)

Where merchandise is sold on F.A.S. basis, the cost of goods includes delivery to along side overseas
vessel and within reach of its loading tackle. Under this quotation – F.A.S. (named port shipment)June 2007 17

Seller must

1. place goods along side vessel or on dock designated and provided by, or for, buyer on the date
or within the period fixed; pay any heavy lift charges, where necessary, up to this point;
2. provide clean dock or ship’s receipt;
3. be responsible for any loss or damage, or both, until goods have been delivered along side the
vessel or on the dock;
4. render the buyer, at the buyer’s request and expense, assistance in obtaining the documents
issued in the country of origin, or of shipment, or of both, which the buyer may require either for
purposes of exportation or of importation at destination.

Buyer must

1. give seller adequate notice of name, sailing date, loading berth of, delivery time to, the vessel;
2. handle all subsequent movement of the goods from along side the vessel;
3. arrange and pay for demurrage or storage charges, or both, in warehouse or on wharf, where
necessary;
4. provide and pay for insurance, (if desired);
5. provide and pay for ocean and other transportation;
6. pay export taxes, or other fees or charges, if any, levied because of exportation;
7. be responsible for any loss or damage, or both, while the goods are on a lighter or other
conveyance along side vessel within reach of its loading tackle, or on the dock awaiting loading,
or until actually loaded on board the vessel, and subsequent thereto;
8. pay all costs and charges incurred in obtaining the documents, other than clead dock or ship’s
receipt, issued in the country of origin, or of shipment, or of both, which may be required either for
purposes of exportation, or of importation at destination.
F.O.B. (FREE ON BOARD)
Where merchandise is sold on F.O.B. basis, the seller quotes a price covering all expenses up to and
including delivery of the goods upon the overseas vessel provided by, or for, the buyer at the named
port of shipment. Under this quotation – F.O.B. (name port of shipment)

Seller must

1. pay all charges incurred in placing goods actually on board the vessel designated and provided
by, or for, the buyer on the date or within the period fixed;
2. provide clean ship’s receipt or on-board bill of lading;
3. be responsible for any loss or damage, or both, until goods have been placed on board the vessel
on the date or within the period fixed;
4. render the buyer, at the buyer’s request and expenses, assistance in obtaining the documents
issued in the country of origin, or of shipment, or of both, which the buyer may require either for
purposes of exportation, or of importation at destination.

Buyer must

1. give the seller adequate notice of name, sailing date, loading berth of, and delivery time to, the
vessel;
2. bear the additional costs incurred and all risks of the goods from the time when the seller has
placed them at his disposal if the vessel named by him fails to arrive or to load within the
designated times;
3. handle all subsequent movement of the goods to destination:
– provide and pay for insurance;
– provide and pay for ocean and other transportation;June 2007 18
4. pay export taxes, or other fees or charges, if any, levied because of exportation;
5. be responsible for any loss or damage, or both, after goods have been loaded on board the
vessel;
6. pay all costs and charges incurred in obtaining the documents, other than clean ship’s receipt or
bill of lading, issued in the country of origin, or of shipment, or of both, which may be required
either for purposes of exportation, or of importation at destination.