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   Freightgate - Cargo Insurance Guide
 6. Some terms you should know if you offer clients cargo insurance:
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(Partial list)

INDEMNITY: Ocean Marine Cargo insurance is written on an indemnity basis. The intent of indemnity is to make someone "whole" again by paying actual damages to the cargo, while preventing any gain. Under the principle of Indemnity, insurance is designed to restore the policyholder to the same financial condition enjoyed prior to a loss, subject to the terms and conditions of the insurance purchased.

SUBROGATION: Subrogation applies when a third party caused a loss or was primarily responsible for it through negligence. A loss victim usually has legal recourse against a party at fault. Subrogation transfers this right to the insurer when a loss is paid, but only to the extent of the insurance payment. Failure to protect the Insurer's Subrogation Rights can adversely affect claims settlement.

CARE, CUSTODY, AND CONTROL: Ocean Marine insurance covers shipments while they are under the "Care, Custody, and Control" of the Forwarder while the purchaser of the insurance (Shipper, Consignee or other party) retains an Insurable Interest in the goods covered subject to the Incoterms. (See Coverage Limitations).

WARRANTY: A statement in any Ocean Marine insurance document, whether application, claim, or other communication, submitted by an Insured, whether by the Forwarder or the person insuring the cargo, is warranted to be TRUE IN ALL RESPECTS. IF UNTRUE IN ANY RESPECT, even though the untruth may not have been known to the person giving the warranty, the CONTRACT MAY BE VOIDED whether or not the untruth or inexactness was material to the risk.

ACTUAL CASH VALUE: The sum of money required to pay for damages or lost property, computed on the basis of replacement value less its depreciation by obsolescence or general wear. NOTE: Ocean Marine insurance covers the value of the goods for their replacement value or to the limits of the insurance, whichever is less. It is reasonable and customary in Ocean Marine insurance to insure cargo for CIF+10%. CIF+10% means insuring the shipment for the Cost of the goods, the cost of the Insurance, the cost of the Freight, and an extra 10-pct. of the total value for lost time, paperwork, and trouble.

INCOTERMS: All Ocean Marine insurance is governed by the sales contract. When ownership of goods changes hands, insurance begins or ends unless prior arrangements have been made with the Insurer. There are 13 widely used and internationally approved Incoterms. Incoterms delineate where responsibilities of Shippers, Sellers, Buyers and Consignees begin and end. Incoterms wordings are available from the International Chamber of Commerce.

GENERAL AVERAGE: Under General Average, those whose cargo survives a voyage are charged to repay the loss of another shipper whose cargo may have been jettisoned or lost for the protection of the vessel and the load remaining. Any shipper whose cargo arrives intact when others' was lost may face a General Average charge. Insuring cargo under the minimum, "Clauses C" will cover total loss of cargo and General Average claims.

COINSURANCE: In property insurance, a clause under which the insured shares in losses to the extent that he is underinsured at the time of loss. Ocean Marine shipments are subject to the Co-Insurance Clause.

EXAMPLE: If goods are worth $100,000; If the goods are insured for $50,000; and there is a $40,000 loss: Then the Insurer will pay only $20,000 for the loss. Goods were insured for half their value, thus settlement is made at half the loss.

INSURANCE: Insurance is a social device that protects people and businesses against certain types of losses by transferring risks from individuals to groups.

RISK: Risk is the uncertainty about loss that exists whenever more than one outcome is possible.

INSURER: The Insurer is the individual, company or entity assuming risks and agreeing to pay claims or provide services.

INSURED: The Insured is the person or business covered by the insurance who pays the premiums in exchange for protection against losses.

INSURANCE POLICY: The insurance policy is a contract, a legal document, which establishes the terms of the agreement between the insurer and the insured.

INSURANCE CLAIM: The insurance claim is a demand for payment of any loss which may be covered, in whole or in part, by an insurance policy.

LOSS: A loss is any reduction in the quality, quantity, or value of something.

DIRECT LOSSES: Direct losses are covered under Ocean Marine cargo insurance when property is lost, stolen, damaged or destroyed under the terms, conditions, and wordings of the Insurance policy.

PERIL: A cause of a potential loss.

HAZARD: Anything that increases the seriousness of a loss or increases the likelihood that a loss will occur is a hazard.

PHYSICAL HAZARDS arise from material, structural, or operational features of a risk situation. MORAL HAZARDS arise from people's habits that increase the possibility of loss. MORALE HAZARDS arise out of human carelessness or irresponsibility. LEGAL HAZARDS arise from court actions that increase the likelihood or size of a loss.

RISK is the uncertain potential for loss. PERILS are things that cause losses. HAZARDS are catalysts that trigger or advance perils.

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