Definition and Kinds of MARINE CARGO INSURANCE

1. OVERVIEW OF MARINE INSURANCE
1.1. Definition of marine insurance
Marine Insurance covers the loss or damage of ships, cargo, terminals, and any
transport or property by which cargo is transferred, acquired, or held between the points
of origin and final destination.
1.2. Types of risks in marine insurance
1.2.1. Base on the causes
− Act of god, vile weather, thunderstorm and lightening, tsunami, earthquake, flood,
volcanic eruption,etc.
− Perils of the sea: Ship strike upon the rocks, ship sinking, ship collision, colliding
with icebergor other objects.
− Risks caused by political actions: War, SRCC (Strikes, Riots, Civil, commotions).
− Risks causes by particular actions of people: Thieves, robbers.
− Risks causes by other sources.
1.2.2. Base on the insurance technique
a) Insured common perils: The risks that are normally insured in original insurance
clause
1)
2)
3)
4)
5)
6)
b)
−
−
c)
−
−

Main risks

Stranding
Sinking
Fire or explosion
Collision
Jettison
Missing

1)
2)
3)
4)
5)
6)
7)

Auxiliary risks
Theft
Leakage
Breakage
Dampness
Heating
Hooking
Rusting

Relative excluded Perils: Risks that are not included in standard insurance clauses.
War
SRCC
Absolutele Excluded Perils: Risks that are not insured in any circumstances:
Loss, damage or expense attributable to wilful misconduct of the assured
Ordinary leakage, ordinary loss in weight or volume, or odinary wear and tear of

the subject – matter insured.
− Loss, damage or expense cause by insufficiency or unsuitability of packing or
preparation of the subject – matter insured.
− Loss, damage or expense caused by inherent vice or nature of the subject matter
insured.


− Loss, damage or expense proximately caused by delay, even though the delay be
caused by a risk insured again.
− Loss, damage or expense arising frokm insolvency or financial default of the
owners, managers, charters or operators of the vessel
− Loss, damage or expense arising from the use of any weapon of war employing
atomic or nuclear fission and/or fusion or other like reaction or radioactive force
or matter
1.3. Types of losses and damage in marine insurance
1.3.1. Total loss.
Actual total loss
Means the whole lot of the
consignment has been lost or damaged or
found valueless upon arrival at the port of
destination.

Actual total loss
Found in the case where the actual
loss of the insured good is unavoidable, or
the ship or consignment has to ba abandone
because the cost of the recovery would
exceed the value of the ship and the
consignment in sound condition upon the

arrival of the port of destination.

1.3.2. Partial loss: Means that the loss or damage dine to the goods is only partial.
− Particular average( Ton that rieng) :losses of each insured interest individually
due to acts of god or perils of the sea.
− Insurer’s liability: Compensate for both of the losses and reasonable costs
caused by particular average
2. MARINE CARGO INSURANCE
2.1. The essential roles of Marine cargo insurance
•

Coverage for limited carrier liability
The carriers, by law, are not responsible for many common causes of loss that
occur in transit (for example, acts of God, general average, etc.). And, even if they
are liable, carriers’ liability in the event of a loss is limited – either by contract in
the bill of lading or by law. In most cases, you will only recover cents on the dollar
from the carrier.

•

Cargo insurance is important in international trade. Businesses need cargo
insurance to reduce risk in importing and exporting. Cargo insurance is covered
under risk policy or floating policies.


•

80% of international cargo transportation is carried out by sea. Again the
overwhelming amount of sea transportation is handled via containers. Any voyage
of cargo ship not only has a long distances and takes a few month to completed,

but also has a lot of risks (ex: Fire, Lightning, Explosion, Riot, strikes, malicious
damage, storm, etc…)

2.2. The conditions of marine cargo insurance
2.2.1. The conditions of marine cargo insurance of UK
a)

ICC 1963
−
−
−
−

b)

Free of particular average ( FPA)
With particular average (WA)
All risk (AR)
War risk (WR)

ICC 1982 ( ICC 2009 ) Change 3 main conditions
FPA => INSTITUTE CARGO CLAUSES C
WA => INSTITUTE CARGO CLAUSES B
AR => INSTITUTE CARGO CLAUSES A

There has been some updating of the language used in the clauses. In particular: The terms ‘goods’ and ‘cargo’ have been replaced by ‘subject matter insured’. - The term
‘underwriters’ has been replaced by ‘insurers’. - The marginal side headings in the 1982
Clauses have been replaced by sub-headings.
The Strikes and War Clauses have been amended in line with the A Clauses and
we have only shown below the Risks Covered Clauses of each for ease of reference.

2.2.2. The conditions of marine cargo insurance of Vietnam
a)

QTCB 1965

b)

QTC 1990

c)

QTC 2004

2.3. The scope of responsibility of the insurer (according to QTC 2004)
2.3.1. The risks/ loss insured
a)

The risks/loss insured by the type C of QTC 2004

• Loss of or damage to the subject-matter insured reasonably attributable to


− fire or explosion
− vessel or craft being stranded grounded sunk or capsized
− overturning or derailment of land conveyance
− collision or contact of vessel craft or conveyance with any external object other

than water
− discharge of cargo at a port of distress

• Loss of or damage to the subject-matter insured caused by
− general average sacrifice
− jettison
b)

The risks/loss insured by the type B of QTC 2004

All the above plus:

• Loss of or damage to the subject-matter insured caused by
− general average sacrifice
− jettison or washing overboard
− entry of sea lake or river water into vessel craft hold conveyance container or

place of storage

• Total loss of any package lost overboard or dropped whilst loading on to, or
unloading from, vessel or craft.
c)

The risks/loss insured by the type A of QTC 2004

All risks are covered.
Please do remember that “All risks” are not “All Risks” in that there has to have
been a happening. Something has to have happened which is NOT EXPECTED.


d)

The risks are excluded

In no case shall this insurance cover:
− Loss damage or expense attributable to wilful misconduct of the Assured
− Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of
the subject-matter insured
− Loss damage or expense caused by insufficiency or unsuitability of packing or
preparation of the subject-matter insured (for the purpose of this Clause 4.3
"packing" shall be deemed to include stowage in a container or liftvan but only
when such stowage is carried out prior to attachment of this insurance or by the
Assured or their servants)
− Loss damage or expense caused by inherent vice or nature of the subject-matter
insured
− Loss damage or expense proximately caused by delay, even though the delay be
caused by a risk insured against (except expenses payable under Clause 2 above)
− Loss damage or expense arising from insolvency or financial default of the owners
managers charterers or operators of the vessel
− Loss damage or expense arising from the use of any weapon of war employing
atomic or nuclear fission and/or fusion or other like reaction or radioactive force
or matter.
2.3.2. The space and time of insurance liability
From the time the goods leave the warehouse -> port of destination
3. THE CONTRACT OF MARINE CARGO INSURANCE
3.1. Definition
According to Dr. David Bland, Insurance is a contract whereby one party (called an
insurance company) with collection of a sum of money (called as a premium), commits to
pay to the other party (called as the insured), a sum of money or in kind equivalent to that
amount when an incident that goes against the insured's interest occurs.
Therefore, the marine insurance contract is the insurance contract for marine risks,
whereby the insurer commits to compensate the insured for maritime losses under the
insurance liability in the manner and condition agreed in the contract.

3.2. The properties

• As a Contract of Indemnity because when losses occur, the insurer is responsible
for compensating the insured.


• Be a contract of good faith. When signing an insurance contract, the Marine
Insurance Act 1906 states: when signing and implementing a marine insurance
contract, if a party is not the most honest, the other party has right to cancel
insurance contract. Specifically:
− After signing the insurance contract with the loss of the goods, if the buyer does
not have insurance benefits, the insurer has the right to refuse compensation even
if the loss is caused by an insurance risk in the effective period of insurance.
− The insurance contract is invalid when at the time of signing the contract, the
subject of insurance does not exist.
− At the time of entering into the insurance contract, if the goods are lost in this
insurance period, if the buyer knows the insurance event has occurred, the
insurance contract is void, if the buyer knows that the event has occurred, the
insurance contract remains in effect ...
• Be a negociable document. The insurance policies or insurance certificates may be
transferred to another person after the insured or its authorized representative signs
on the back of the insurance policies or certificates. For example: selling at CIF
price, the seller after buying insurance for the goods will endorse the transfer
insurance bill of lading to the buyer.
3.3. The main contents of the contract ( the insured person, the insurance value, the
insurace fee, the insurance amount

• The policy holder
In the marine insurance contract, the policy holders are organizations and
individuals that have the right to own the insured consignment and are entitled to receive

compensation from the insurer when an insurance event occurs. The insured is usually an
importer.
Unlike other insurance operations, the policy holder do not necessarily have
insurance benefits when conducting the insurance, however, they must have a reasonable
estimate of the benefits.
In case the exporter is a participant in the insurance, together with the shipment they
must transfer the benefits of the insurance contract to the importer through the
endorsement of the insurance application sent to the importer. (according to Clause 3,
Article 226 of the Vietnamese Maritime Act 2005). Obligations of the policy holder:
- Buy the insurance for goods as soon as possible


- Notify all information about the insured, about the change or increase of risks to the
insurer.
- Pay the full premium on time.
- In the case of loss:
+ Notify the insurer and request an assessment.
+ Apply the measures to prevent and limit the losses.
+ Make necessary documents and reserve the right to appeal against a third person.
+ Notify the insurance company about general loss procedures like Average Bond,
Average Guarantee

• Insurance value:
According to Clause 2, Article 232 of the Vietnamese Maritime Act 2005, the
insurable value of goods is the value of the goods on the bill at the place of loading or the
market price at the place and time of loading plus the premium, freight and may include
estimated interest.
Thus, according to the above provisions, the insurable value of goods is determined
on the basis of the value of goods at the port of destination in the process of transport.

• Insurance amount:
Under Article 41 of the insurance business law, the insurance amount is the amount
that the buyer requires to insure the asset.
According to Article 233 of the Vietnamese Maritime Act 2005, when signing an
insurance contract, the insured must declare the insurance amount for the insured subject
(called as the insurance amount).
Both of these terms are semantically similar because it is likely that the insurance
amount is the amount that the buyer declares according to its insurance needs.
In principle, the insurer only accepts a copy of the insurance policy with the
maximum insurance amount equal to the insurance value, in order to avoid the fraud and
profiteering in insurance relations.
With an insurance contract with the insurance amount equal to the value of the
goods, it is called as full insurance. However, for many different reasons such as: because
the buyer only wants to guarantee a part of the value of goods, due to fluctuating
commodity prices during the term of insurance or due to inaccurate commodity valuation,
may lead to the following cases:


− The insurance amount of the contract is lower than the value of the insured goods.
In this case, it is called under insurance and the insured will collect the loss in the
uninsured value.
− The insurance amount exceeds the value of insured goods. This is called as over
insurance. In the insurance of imported and exported goods, the insurer can accept
the insurance amount of the contract larger than the insurance value, but the
insurance amount is only accepted when it is considered a possible interest of sales
(estimated profits) and it is no greater than 10% of the value of the insured goods,
the excess will not be valid.
• Insurance fees:
Insurance fees are the amount that the buyer must contribute to the insurance
company by the time and in the manner agreed by the parties in the insurance contract

(Clause 11 of Article 3 of the Insurance Business Law).
In insurance for exported and imported goods transported by the sea ways, the
insurance amount is determined by the rate of insurance multiplied by the insurance
amount of the contract. Actually, based on the agreements in the insurance contract, the
insurance fees can be paid in Vietnamese or foreign currency.
4. THE MARINE CARGO INSURANCE DEAL

• The sales contract between:

− The seller – the exporter: Korea EnE Co., Ltd
− The buyer – the importer: Hai Binh Import Export trading joint stock company
• The insurance contract between:
− The applicant: Korea EnE
− The insurer: AIG Korea


− Commodity:

4.1. The seller
The sales contract importing goods from Korea, Incoterms 2010 CIF Haiphong
Port, so the seller – the exporter was responsible for the insuring contract. After
negotiated and then signed the sales contract with Hai Binh Import Export trading joint
stock company, Korea EnE Company carried out the operation of buying insurance for
goods.
4.2. The Insurer – AIG Korea Inc.
− Address: the 27th floor, Two IFC, 10 Gukjegeumyung-ro, Youngdeungpo-gu,
Seoul, Korea.
− Website:
− Tel: 02-2260-6800 - Fax: 1544-0060
AIG Korea Inc. provides property and casualty insurance products to commercial,

institutional, and individual customers in Korea and internationally. It offers personal
accident, property, marine, and commercial/financial liability coverage to corporate and
individual customers. AIG Korea Inc. was formerly known as Chartis Insurance Korea
Inc. and changed its name to AIG Korea Inc. in April 2013. The company was founded in
1947 and is based in Seoul, South Korea. AIG Korea Inc. operates as a subsidiary of AIG
Asia Pacific Insurance Pte. Ltd.
The AIG story begins in China in 1919, when American Cornelius Vander Starr
started an insurance agency in Shanghai. The enterprise grew first across China, then


across the globe, with every new market and culture. AIG officially entered Korea in
1954 and then developed strongly and became the leading insurance group in Korea.
AIG’s revenue reached 49,52 billion USD and 2,63 billion USD of profit in 2017.
4.3. Procedures for requesting and accepting insurance between the two parties
4.3.1. The buyer requests insurance
After considered the risks that may be encountered for the goods- the petrol pumps
shipped form Korea to Vietnam and under CIF condition, the responsibility to buy
insurance belongs to the seller, EnE Korea decided to buy insurance for import and
export goods carried by sea. Because AIG Korea is reputable long-term insurance
company and a regular partner of EnE Korea, the company contacted to AIG and asked
for insurance.
4.3.2. The Applicant declared Application Form for marine cargo insrurance
Korea EnE and AIG negociated and agreed that the insurer – AIG Korea would their
Application form for marine cargo insurance to Korea EnE and they must fill all
information this form required correctly. This form requied:

• The policy holder’s information: the company’s name, address, phone number, fax
number, bank account and other basic information.

• The insured cargo’s information: Name of cargo insured, sale contract or

commercial invoice number, mean of conveyance, bill of lading, insured value,….

• Insurance request: type of insurance, beneficiary, total insured amount, underlying
conditions, deductible, claim, method of payment,….

• Enclosed documents: sale contract, bill of lading, invoice, letter of credit,….
4.3.3. Accepting insurance request, issuing Insurance policy and signing the insurance
Contract

After filled in the Application form for marine cargo insurance, Korea EnE have
sent it to AIG. Basing on the information in the form, AIG would check the information.
When all information was correct, AIG would draft an insurace Policty and then send to
EnE Korea enclosing an insurance contract (according to the form of AIG) to sign. After
receiving the Insurance policy and insurance contract in accordance with the form of
AIG, Korea EnE would sign this contract if they agreed all terms and appendices of this
contract. The insurance policy is transferable and is a legal evidence for the commitment


of AIG Co, Ltd to the Kore EnE in the event of an insurance event. The insurance policy
and insurance contract are integral parts of a set of the insurance contract. After receiving
the copies of insurane contract and insurance policy, Korea EnE would check the
information and terms written on them to ensure accuracy.
If the applicant had no complain, AIG would send EnE Korea the original insurance
certificate and policy to sign and stamp.
4.3.4. Analysis of basic content of documents in the contract cargo insurance
The policy holder was Hai Binh Import Export trading joint stock company – the
importer. The terms were CIF, the seller was responsible for the insuring contract.
Insured merchandise were 15 single nozzle, standard speed (45liters/minute), 3phase motor, 380V, 400W, 50Hz, hose length 7 meter with sight glass, without
nozzle(worth 2.200USD) and 5 single nozzle, standard speed (80 liters / minute), 3-phase
motors, 750V, 400W, 50Hz, hose length 7m with sight glass, without nozzle (worth 2,300

USD / set) packed according to Korean standard packing (Carton box).
The consignment was delivered by sea transport in journey from Busan port, Korea
to Hai Phong port, Vietnam.
− Insured value: 48.950 USD
− Total Insured amount: 48.950 USD
It is considered that the journey of goods from South Korea to Vietnam is a long
distance and travel time. On the other hand, the transit time is at the end of August on
which storms often occur. Therefore, the seller decided to buy insurance with 100% value
of insurance (A = 100% V).
− Deductible: 200USD
− Premium rate was 0.14% (to
Insurance fee: 68,53 USD (calculated by formula: A*R= 48950*0.14%)
The primary insurance condition was The Institute Cargo Clauses 1982. Besides,
the seller bought insurance for 2 additional risks: breakage and impact during loading and
unloading at 2 ports.
Because the insured machandises were petrol pumps, total value of consignment
was not too much and the coverage on a A and B basis are too wide, Korea EnE chose the
institute cargo clause on C basis and 2 additional risks that the goods were at higher risk.