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Premier Provider of Innovative Insurance and Surety Solutions Cargo Insurance Wanda Sample ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO

Why Insure? Sandy! • Rigors of shipping – Loss, damage and theft – General Average (ocean) • Carriers’ liability – Carriers only pay claims when liable – Liability is often limited – Often have improper insurance or insufficient funds • Usually in trucking or warehousing © Avalon Risk Management

Ocean shipments

Ocean Shipments • In the United States, the Carriage of Goods by Sea Act (COGSA) governs liability for ocean cargo. – Limits recovery to $500 per package or customary freight unit (CFU) when the carrier/NVOCC is negligent. What is a package? • The smallest unit of packaging declared on the bill of lading. This could be a whole container, a pallet, etc. Examples: – One 40 -foot container S. T. C. 100 cartons of shoes. If the carrier is liable, liability is limited to the lesser of the cargo’s value or 100 x $500. – One 40 -foot container S. T. C. 1000 hanging garments. If the carrier is liable, liability is limited to the lesser of the cargo’s value or 1 x $500 – A hanging garment is not considered a “package. ” • In Canada, Hague-Visby applies. – 666. 67 SDR per package or 2 SDR per kilo, higher than COGSA. • Rotterdam Rules signed in 2009 will be the new liability convention. Needs to be ratified first. © Avalon Risk Management

17 Hague-Visby Defenses 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Neglect of carrier in the navigation or in the management of the ship Fire (unless by fault of the carrier) Perils, dangers, and accidents of the sea Act of God Act of war Act of public enemies Arrest, restraint, or seizure Quarantine restrictions Act of omissions of the shipper or owner Strikes, lockouts, or labor stoppage Riots and civil commotions Inherent defect, quality, or vice of the goods Insufficiency of packing Insufficiency or inadequacy of marks Latent defects not discoverable by due diligence Saving life or property at sea (general average) Any other cause arising without the actual fault of the carrier © Avalon Risk Management

General Average

General Average • Ocean loss. A voluntary sacrifice to save cargo/vessel/life. – Extraordinary expenses are incurred (i. e. , jettison, fire). • All cargo is seized. Amount of GA loss is determined. – Must post security deposits to release cargo. © Avalon Risk Management

How General Average Works Vessel and freight value $100 million Saved cargo value $100 million Contributing value (total) $200 million • Assume $40 million in cargo was sacrificed. • The loss represents 20%of the contributing value. • Cargo owners must contribute 20% of their respective cargo values, even if their cargo wasn’t damaged. © Avalon Risk Management

General Average • A guarantee must be posted to release the freight. • If the cargo was insured, the insurance company provides the guarantee. • Without Cargo Insurance, cash must be posted. • General Average claims can take years to resolve. © Avalon Risk Management

International Air Shipments

International Air Shipments • Two liability conventions. • The Warsaw Convention limits air carrier’s liability to the lesser of cargo value or $9. 07 per pound ($20 per kilogram). • The Montreal Convention (effective March 1999) changed the limitation to 19 Special Drawing Rights (SDRs), about $25 per kilogram. • Limitation will vary based on country of origin and/or destination. © Avalon Risk Management

Domestic shipments: Air, Road, Rail, Warehouse

Domestic Shipments • Domestic air, intrastate road carriers, and warehouse operators often limit liability to $0. 50 per pound or $50 per shipment. – Based on bill of lading or warehouse receipt. • Carmack Amendment applies to interstate carriers. – Dictates full value unless opted out by bill of lading, tariff or contract. • Some carriers may have inadequate or no liability insurance and be unable to fund a loss out of pocket. © Avalon Risk Management

Summary of Liability Limits Statute Mode Customary Limit Carriage of Goods by Sea Act (COGSA) Ocean $500 per Customary Freight Unit Warsaw Convention (International) Air $9. 07 per pound or $20 per kilo Montreal Protocol (International) Air 19 Special Drawing Rights (SDRs) Domestic Air (based on AWB) Air $0. 50 per lb. and/or $50 per shipment Warehouse Operators (based on receipt) Warehouse $0. 50 per lb. and/or $50 per shipment Local Carriers (based on bill of lading) Intrastate $0. 50 per lb. and/or $50 per shipment Carmack Amendment Interstate Full value, unless limited by rate/contract © Avalon Risk Management

Cargo Insurance Basics • You can insure freight by: – – Vessel Aircraft Truck/Rail Warehouse © Avalon Risk Management

Cargo Insurance Basics Coverage Type What’s covered? “All-Risk” Everything but what’s excluded Free of Particular Average (FPA) Named perils only With Average (WA) Adds “heavy weather” peril to FPA If your policy is with a London Company or a company following the standard London format, your conditions will be governed by the London Institute Clauses (ICC) “A, ” “B” and “C, ” which are similar to American terms “All-Risk, ” “FPA” and “WA. ” Please refer to your cargo policy and our manual for a comparison. © Avalon Risk Management

Cargo Insurance Basics • “All-Risk” coverage – “All risks” except exclusions – Typical exclusions: (consult manual/policy) • • Improper packing Abandonment of cargo Rejection/delay by Customs Inherent vice © Avalon Risk Management

Cargo Insurance Basics • FPA coverage • Coverage is for named perils only (consult policy/manual) – – – Fire or explosion Sinking and stranding Grounding Crash of aircraft Jettison – General Average – Overturn of truck – Collision/derailment of land conveyance – Discharge at port of distress • WA coverage – Same as FPA coverage, but adds perils of heavy weather © Avalon Risk Management

Why buy cargo insurance? • So you are compensated should a loss occur. • To protect your interests in the event of a General Average. • If buying CIF, you won’t need to deal with an overseas insurer. – They may also have inadequate coverage. • Claim handling is simplified. © Avalon Risk Management

Claims – What is covered? – Physical Loss or damage to cargo – Freight charges (if included within the insured value) – Duty paid (if included within the insured value) – Debris removal © Avalon Risk Management

Claims – What is not covered • Freight charges if cargo is deferred to another port • Consequential losses arising from Delay (where no physical loss or damage has occurred to the freight) – Including (but not limited to) • Loss of market • Loss of use • Contractual penalties © Avalon Risk Management

Timeframes to File Claims Damage (Hidden/Concealed) Non-delivery 120 days from date of issuance Suit filed within 2 years of arrival date Immediately Non-visible Loss/Damage 3 days from discharge/delivery Statute of Limitations Per COGSA, suit filed within 1 year from date of delivery. Hague-Visby /FIATA bill of lading limit suit to 9 months Loss/Damage Immediately or 7 days from delivery Statute of Limitations Varies by carrier per bill of lading, freight receipt or tariff. On interstate trucking, the Carmack Amendment limits action to 9 months after date of delivery. In Canada, varies by province. Ontario: 2 years. Loss/Damage 60 days after delivery of goods or 60 days after the warehouse receipt holder is notified of the loss, whichever is shorter Statue of Limitations 9 months after delivery goods or 9 months after the warehouse receipt holder is notified of the loss, whichever is shorter Loss/Damage/Negligence Per time frames for ocean or air above on entries, 75 days from liquidation Statute of Limitations 2 years from date of loss or damage Loss/Damage Domestic 14 (Warsaw) or 21 days (Montreal) from delivery Visible Loss/Damage Ocean Shipments Delay Statute of Limitations Air shipments 7 (Warsaw) or 14 (Montreal) days from delivery 7 days from the completion of transit Non-delivery/any other event 45 days from when the goods should’ve been delivered Statute of Limitations 9 months Warehouse NCBFAA Terms & Conditions of Service CIFFA Trading Conditions © Avalon Risk Management

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