Cargo insurance is vital for the protection of your products that originate from or are destined for locations abroad. Aside from protecting your business from financial losses associated with lost or damaged cargo, insurance can protect you a variety of maritime shipping risks, such as the law of general average.
While cargo insurance can help you avoid financial losses at sea, there are common insurance exclusions that you should keep in mind. The following are the most common exclusions that an insurance company will not cover. While they may not be covered by insurers, the causes of these exclusions can be easily avoided with proper planning and practices by the shipper.
The loss of or damage to goods in transit, which can be foreseen, is called inherent vice. This arises from the condition and physical nature of the goods or products in question. With inherent vice, damages are not a result of supply chain processes. Rather, they are contributed to an internal cause. An example would include unstable chemical compounds that could react and lead to an explosion.
Excludes:Damages caused by the nature of the product itself.
The term latent defect refers to issues with a product that would not be easily noticed upon inspection. An example of this exclusion would be a product that's welds show cracks or separations as a result of improper manufacturing. The damage would be attributed to the quality of labor or manufacturing of the products.
Excludes: Damages due to quality of goods.
Loss Due to Improper Packaging
Careful packaging and crating play an important role in the supply chain, both, on land and at sea. When a shipper fails to properly secure cargo with proper packaging techniques, products can easily be damaged while in transit. Reusing corrugate boxes or crates that are loosely built can result in losses that would not be covered by cargo insurance.
Excludes:Damages caused by improper packaging and crating.
This exclusion protects carriers and forwarders from damages and losses caused by the willful misconduct of the assured or their employees. The term assured refers to the insured party. In most cases, the party receiving the cargo is the assured. In essence, this exclusion can be summed up as insurance fraud. For example, a company could intentionally import damaged products to make a claim to the insurance company.
Excludes: Intentional misconduct or steps taken to defraud the insurance company.
Unexplained Loss Or Shortage
An unexplained loss or shortage of goods is excluded when it occurs from a vehicle owned, leased or operated by the insured party. This most common occurrence would be theft of property from the vehicle, either by the insured or employees of insured. This would also exclude theft from unrelated parties as a result of the insured's vehicle being stolen or not securely locked.
Excludes: Disappearance of goods or theft from insured party's vehicle.