MULTIMODAL TRANSPORT

Pham Thi Be Loan

loanptb@due.edu.vn
Chapter 5
TRANSPORT INSURANCE
Chapter 5: TRANSPORT INSURANCE
I. Principle concept of insurance
II. Loss, damage and average
III. Transport cargo insurance
I. Principle concept of
insurance
Principle concept of insurance
Definition
Insurance is a commitment of an insurer to indemnify the
insured for any damage, loss caused to the subject-matter
insured due to a risk insured, provided that the insured
must pay the insure an amount of money called premium.
Characteristics of insurance
Split the loss of one or few people with all the insured.
Rules of insurance
1. Indemnity: Indemnity is compensation for damages or loss.
The concept of indemnity is based on a contractual
agreement made between parties, in which insurer agrees
to pay to insured for any damages or losses, in return for
premiums paid by the insured to the insurer.
-> a basic and important rule of insurance
Rules of insurance
2. Subrogation: Subrogation is the right for an insurer to
legally pursue a third party that caused an insurance loss to the
insured. This is done as a means of recovering the amount of
the claim paid by the insurance carrier to the insured for the
loss. Subrogation is made after insurer indemnifies insured.
Rules of insurance
3. Utmost good faith: Before a contract is concluded, the
insured must disclose to the insurer all material facts of which
he is aware which could affect the risk he is asking the insurer
to bear. A failure to disclose, however innocent, entitles the
other party to avoid the contract.
Insurance terms
• Insurer: an underwriter or company that contracts to
indemnify another in the event of loss or damage.
• Insured: The person who has the insurable interest in the
property at risk.
• Risks insured against: the insurer only indemnifies the
insured for damage caused by risks stated in the insurance
policy
Insurance terms
• Insurable Interest
Definition
- Insurable interest is an interest that might be damaged if the
peril insured against occurs; the possibility of a financial loss
to an individual that can be protected against through
insurance
- Insurable Interests mean the rights to ownership, the rights
to possession, the right to use, the property rights; the rights
and obligations to foster and provide financial support for
insured objects (Vietnam Law on Insurance Business No.
24/2000/QH10)
-> In order for a person to have an “insurable interest” in a
property, he must have a legitimate financial concern in that
property.
Insurance terms
• Insurable Interest
Principle
- The insured must have insurable interest in the subject
matter of insurance.
- The insured must be in a position to lose financially if a
covered loss occurs. Insurable interest must exist at the time
of application and at the time of loss to prevent gambling,
reduce moral hazard and measure the amount of insured’s
loss in property insurance.
• In marine insurance, unlike other branches of insurance, the
insured need not have an insurable interest at the time of
effecting the insurance, but in the loss. However, there must at
least be an expectation of acquiring an interest when entering a
contract with the insurers.
Insurance terms
• Insured value
- Insured/Insurable value of the property is the actual cash
value, replacement cost, or some other value described in the
valuation clause of the policy
- The insured value refers to the actual value of the subject
matter insured (Vietnam Maritime Code No. 95/2015/QH13)

In marine insurance contract on goods:

Insured value = cost of the insured property (C)+
freight expense (F) + insurance premiums (I) + profit
(P)
= 110% CIF (customary)
Insurance terms
• Insured amount
- Insured amount is the amount actually insured in conclusion
of insurance contract on the basis of insurable value.
- Insured amount is the sum that the insurer must pay the
assured when an occurrence took place (Vietnam Maritime
Code No. 95/2015/QH13).
- Insurance terms
• Premium: an amount of money that the insured pay to the
insurer for an insurance policy. There are no uniform tariffs
in the insurance industry for goods transport insurance.
However, in practice, the insurer takes the following into
account: nature of the goods, packaging, journey en-route,
means of transport & conditions on which the insurance is
concluded.
I=A* R
= R * (C+F)/(1-R) * 110% (customary)
CIF = (C+F) / (1-R)
I : Premium
A : Insured Amount
R : Insurance rate
C : Cost
F : Freight
- Insurance terms
• Reinsurance: The practice of insurers transferring risks to
other parties (reinsurers) in order to reduce the likelihood of
having to pay a large obligation resulting from an insurance
claim.
• Co-insurance: Coinsurance is a risk-spreading procedure
wherein the insured risk is distributed among two or more
insurance companies, each bearing a proportional share of
the risk.
II. Loss, damage and average
Basic of loss, damage and average
Loss in a marine insurance contract is realized when the
insurable interest of an insured is lost or injured due to any of
the perils of the sea commonly ensured for, or perils that are
specifically covered by the insurance contract.
Basic of loss, damage and average

Types of marine losses

(according to the degree of occurred loss)
Basic of loss, damage and average
Total loss:
Actual total loss: occurs where the subject-matter insured is
actually lost, the original nature of the subject matter insured
altered or lost and the insured ship or cargo is missing for a
substantial period of time
-> an insured property is destroyed or damaged to such an
extent that it can be neither recovered nor repaired for further
use
Basic of loss, damage and average
Total loss:
Constructive total loss: occurs where actual total loss appears to
be unavoidable, or because it could not be preserved from
actual total loss without an expenditure which would exceed its
value when the expenditure had been incurred
-> the subject-matter insured can be reasonably abandoned with
Notice of abandonment
Ex: a vessel is said to be a constructive total loss when it is
estimated that the cost of repairing it and carrying it to the
destination would exceed its value when repaired in arrival.
Basic of loss, damage and average
Abandonment:
When there is a constructive total loss, the insured may either
treat the loss as a partial loss or abandon the subject-matter
insured to the insurer and treat the loss as if it were an actual
total loss:
• If the insurer accepts the abandonment, the insurer pays a total
loss to the insured, then takes over the salvage as owner and
dispose of the property as best they can for their own benefit.
• If the insurer refuses the abandonment, the insured may dispose
of the subject matter and claim a loss equivalent to the insured
value less the salvaged value.
Basic of loss, damage and average
Abandonment:
- Abandonment occurs when, although it is not a total loss
caused by to a certain accident, the total loss is likely to be
inevitable, the insured transfers all rights to the subject-
matter insured to the insurer, and then make a claim for total
loss under the insurance contract.
- Notice of abandonment is given in writing which indicates
the intention of the insured to abandon his insured interest in
the subject-matter insured unconditionally to the insurer.
When NOA is accepted, the abandonment is irrevocable.
Is the insured obligated to abandon his property?
Is the insurer obligated to accept Notice of
abandonment?
 Actual total loss Constructive total loss
• Totally lost The actual total loss os cargo
• Missing for a certain is inevitable or unavoidable
period of time without any
information
So damaged to the extent that The cost of salvage or
it has no original shape and recovery could have exceeded
validity the cargo value
No longer be in the posession The insured shall submit the
of the insured Notice of Abandonment to the
insurance company
Basic of loss, damage and average
Partial loss:
- Particular average loss: occurs when the partial loss is
incurred to the insured himself. This includes direct harm to
the ship or cargo, and the insured has to assume all of it.
Thus, particular average is a partial loss caused by a peril
insured against which rests on the insured himself.
Basic of loss, damage and average
Partial loss:
- General average loss: sustained from voluntary sacrifice,
such as jettisoning part of the cargo, to save the ship or crew,
or from extraordinary expenses incurred by one of the parties
for everyone's benefit, such as the cost to tow a disabled
vessel (general average act).
General average losses are proportioned between the
shipowner and cargo owners, usually according to the York
Antwerp Rules.
What is a general average act?

“There is a general average act when, and only when, any

extraordinary sacrifice or expenditure is intentionally and
reasonably made or incurred for the common safety for the
purpose of preserving from peril the property involved in a
common maritime adventure.” (York-Antwerp Rules,
2016)
Examples of General average situation:
Casualty Type of sacrifice or expenditure
Stranding • Damage to vessel and machinery through
efforts to refloat
• Loss of or damage to cargo through jettison
to lighten a stranded vessel
• Port of refuge expenses
Fire • Damage to ship or cargo due to efforts to
extinguish the fire
• Port of refuge expenses
Examples of General average loss, taking the form of (1)
sacrifice and (2) expenditure

General average loss

Sacrifice Loss or damage to physical property, e.g.
• Ship: damage in extinguishing fire,
damage to vessel’s machinery in
refloating
• Cargo: jettison of cargo, damage in
extinguishing fire
Expenditure For the purchase of service, e.g. salvage
expenses, port of refuge expenses, survey fees
Ex: A ship valued at US$500,000 and loaded with 500
containers each worth US$1,000 runs aground
accidentally. During refloating operations, one container is
discharged.
Calculate General Average loss
Ex: A $100,000 ship carrying goods worth $100,000.
During the transportation journey, the ship that was
stranded had to be repaired for $5,000, and damaged
goods was worth $6,500. In order to escape to save the
ship and cargos, a cargo was jettisoned, worth $15,000;
and the ship boiler was overworked, hence being damaged
and repaired, which costed $4,500. Determine particular
average and general average.
Basic of loss, damage and average
Apportionment of General average:
- In the event that an intentional sacrifice is made for the
safety of the individuals and cargo on board the vessel, all
parties involved with the ocean voyage will proportionally
share in the losses of the cargo and the ship
- The party whose cargo is lost in the incident has the right to
compensation from the parties whose cargo was saved as a
result of the sacrifice.
Apportionment of General average:
- Basic principles:
+ All property that is at risk in the common adventure at the
time of the occurrence giving rise to the general average act
and is saved by that act contributes to general average,
according to its value at the termination of the adventure
+ Equality of contribution must be maintained between the
owner of the property sacrificed and the owner of the
property saved.
Apportionment of General average:
- Calculation of apportionment of GA:
1) Total GA = GA sacrifice + GA expenditure
2) Total contributory values
= Value of ship and cargo before GA – Particular average before GA
= Arrived Value of ship and cargo at destination + GA + Particular
average after GA
3) Apportionment rate of the Total GA
= Total GA / Total Contributory values
4) GA contribution of each party
= Apportionment rate * respective Contributory values
5) Balance under adjustment
= Credit received for GA losses - GA contribution
Ex: A ship was carrying cargoes by sea. Value of the ship is $22
million, Cargo A, B, C, D have a value of $2; 3; 1 and 5 million
respectively.
The ship hit a coral reef and ran aground, causing damage to the hull
which costed $ 0.5 million for repair. Cargo A and B lost 50% of
their value.
Encountering high winds, the ship was in danger of capsizing. The
captain decided to use the materials on the ship to seal the hole in
the hull, the value of the material was 0.1 million USD. The captain
threw the cargo C ($ 1 million) into the sea, and pushed the ship's
engine to work overtime to get the ship out of the shoal. Repair cost
of the damaged ship engine was $0.4 million.
Calculate and apportion general average.
 Cargo Cargo Cargo Cargo
Ship Total
A B C D
General 0.1 + 0.4 =
1 1.5
average 0.5
Contributory values
Initial value 22 2 3 1 5
Particular
0.5 1 1.5
average
Contributory
21.5 1 1.5 1 5 30
values
Apportionment 1.5/30 =
rate 0.05
General average contribution of:
- Shipowner: 0.05 * 21.5 = $ 1.075 million
- Owner of cargo A: 0.05 * 1 = $ 0.05 million
- Owner of cargo B: 0.05 * 1.5 = $ 0.075 million
- Owner of cargo C: 0.05 * 1 = $ 0.05 million
- Owner of cargo D: 0.05 * 5 = $ 0.25 million

Balance under adjustment:

- Shipowner pays = 1.075 - 0.5 = $ 0.575 million
- Owner of cargo A pays: $ 0.05 million
- Owner of cargo B pays: $ 0.075 million
- Owner of cargo C receives: 1 - 0.05= $ 0.95 million
- Owner of cargo D pays: $ 0.25 million

Check: Pay = Receive

III. Transport cargo
insurance
Transport cargo insurance cover
Standard Cover
- Cover is provided for both domestic movements and
international import/export shipments and is subject to the
standard Institute Cargo Clauses)
- Cover is normally arrange on the basis of the Institute Cargo
Clauses (A) or (Air)
- This set of clauses is normally the widest form of cover
available and affords protection against all risks of physical
loss of or damage to the goods by accidental causes during
the ordinary course of transit. Cover is available on a
warehouse to warehouse basis.
Transport cargo insurance clauses
- Institute Cargo Clauses (A):
• Formally known as “All-Risk”
• Broadest cover
- Institute Cargo Clauses (B):
• Formally known as “With Average (WA)”
• More restrictive cover
- Institute Cargo Clauses (C):
• Formally known as “Free of Particular Average”
• Most restrictive cover
 Covered Risks A B C
1.1. Loss of damage to the subject-matter insured reasonably attributable to
1.1.1 fire or explosion X X X
1.1.2 vessel or craft being stranded, grounded, sunk or capsized X X X
1.1.3 overturning or derailment of land conveyance X X X
1.1.4 collision or contact of vessel craft or conveyance with any X X X
external object other than water
1.1.5 discharge of cargo at a port of distress X X X
1.1.6 earthquake, volcanic eruption or lightning X X
1.2. Loss of damage to the subject-matter insured caused by
1.2.1 general average sacrifice X X X
1.2.2 jettison X X X
1.2.2 washing overboard X X
1.2.3 entry of sea, lake or river water into vessel craft hold X X
conveyance
container or place of storage
1.3 total loss of any package lost overboard or dropped whilst loading X X
on to or unloading from, vessel or craft.
Piracy, thieves and non-delivery X
Rough handling X
Contamination X
Rain water damage X
Transport cargo insurance clauses
Institute Cargo Clauses 2009:
• Excluded risks under A, B, C clauses:
o General Exclusion Clause: including loss damage or
expense attributable to willful misconduct of the Assured,
caused by insufficiency or unsuitability of packing,
inherent vice or nature of the subject-matter insured, delay
o Unseaworthiness and Unfitness Exclusion Clause
o War Exclusion Clause
o Strikes Exclusion Clause
Ex: A Vietnamese enterprise signs a contract to sell 10,000 MT of rice to
a Malaysian company for US$280/MT FOB Saigon Incoterms 2010.
Rice is packed in 100-kg bag. At the port of discharge, the survey report
is written:
- 100 bags were soaked in sea water, completely damaged
- 80 bags were burnt
- 120 bags with broken packaging, 50% weight reduction
- 70 bags fell off the ship when unloading
- 100 bags were stolen

1. Calculate the insured value of the shipment, knowing that the

shipment was purchased under ICC (B) 1982, RB=1%, F=18 USD/MT,
P=10%
2. Calculate the amount that the Malaysian business claims the insurer,
knowing that the business had to spend $500 for survey fee and $800 to
rebuild the new packaging.
3. If the insurance is under ICC (A) 1982, what is the compensation
amount? Knowing RA=3%
Ex: A company imports raw materials and food additives, including:
- MTR-79: 2,100 bags, 20kg/bag. CIF Saigon price = 1.25 USD/kg
Incoterms 2010
- MTR-80: 2,100 bags, 20kg/bag. CIF Saigon price = 1.4 USD/kg
Incoterms 2010.
1. Calculate the insurable value of the shipment? When unloading
the cargoes from the ship, the survey report is written:
10 bags with broken packaging, weight reduced by 50%
20 bags were soaked in sea water, completely damaged
10 bags fell into the sea when unloading from the ship
15 bags were stolen
25 bags were completely burned and damaged (10 bags of MTR-79,
15 bags of MTR-80)
2. Calculate the compensation amount. The survey fee is $200.