WELCOME TO

MODULE TRANSPORT INSURANCE

2
 MODULE OBJECTIVES

The learners will be able to:

 Identify the principle concepts of insurance, what liability insurance (BH trách
nhiệm pháp lý) refers to, the difference in coverage of various liability insurance
policies and in particular, the liability insurance for FIATA bill of lading;
 Determine the marine risks (rủi ro hàng hải) and measure loss, damage and
average and calculate general average loss and separate into interests;
 Demonstrate about cargo transport insurance (BH vận tải hàng hóa ) as
various forms of transport insurance policies, some specific types of covers and the
interrelation between the insurance policies and the covers in respect of risks
covered and excluded as well as institute cargo clause ICC 1982 (update 2009) and
the application in Vietnam market;
 Illustrate about the duties of Forwarders (điều phối) in case of damage and
analyze the flow of indemnity and document for claim indemnity as well as deal with
case study
 MODULE CONTENTS

Chapter 1: Liability Insurance (BH trách nhiệm)

Chapter 2: Loss, damage and average (Tổn thất,
hư hỏng, TTC)
Chapter 3: Transport cargo insurance (BH hàng
hóa vận chuyển)
Chapter 4: Duties of Freight Forwarder in case of
damage (Trách nhiệm của nhà giao nhận hàng hóa
trong trường hợp hư hỏng)
CHAPTER 1. LIABILITY INSURANCE - BH trách
nhiệm
Learning Objective:
The learners will be able to:
 Identify the principle concepts of insurance as the definition of insurance,
the characteristics of insurance and other terms involved
 Recognize what liability insurance refers to, the different types of liability
and liability insurance policies
 Compare the difference in coverage of various liability insurance policies and in
particular, the liability insurance for FIATA bill of lading
 Explain what P&I Insurance is and how it fits into the marine insurance market,
given a run through the history of P&I, describe the cover P&I Insurance provide
and given an insight into the organisation of the P&I Clubs.
 Name TT club’services to the international transport and logistics industry
 Explain the liabilities that different parties including the insurance company,
forwarders and carriers
Contents
 Principle concept of insurance ; Liability insurance ; Liability of different parties
5
involved
CHAPTER 1. LIABILITY INSURANCE
- Concept of insurance
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
- Principles of insurance:
*Indemnity (bồi thường)
**Subrogation (Quyền thay thế)
***Utmost good faith (Tin tưởng tuyệt
6

đối)
CHAPTER 1.
LIABILITY
INSURANCE
Insurance
principle:
+ Indemnity
• The amount of
money indemnified
• Time

7
 Insurance principle:
+ Indemnity
1. Principle of Indemnity (Nguyên tắc bồi thường)
The principle of indemnity means that insurance contracts are meant to restore
the insured to the same financial position they were in before the loss occurred,
without allowing them to profit from the insurance claim. It ensures that the
insured does not make a gain by being compensated for more than the actual
loss.
Key Aspects:
•Pre-loss financial state: The compensation should only cover the actual loss,
not exceed it.
•No profit: The insured cannot profit from the insurance contract.
Practical Example:
•Car Accident Insurance: Imagine you have car insurance, and your car is damaged in
an accident. The repair cost is $5,000, and your insurer pays $5,000 to cover the repairs.
You are restored to your original position, but you do not receive more than that, so you
cannot make a profit from the accident. If the car’s total value is $20,000 and it's
completely destroyed, the insurer will only pay the value of the car at the time of loss, not
more. 8

•Property Insurance: If a building insured for $100,000 suffers fire damage worth
$60,000, the insurer will compensate for $60,000, as this is the amount needed to restore
 CHAPTER 1. LIABILITY INSURANCE

Insurance principle:
+ Subrogation
• Subrogation is made after insurer indemnifies
insured
• Duty of insured
• What happens if insured fails to fulfill his
duty?
• Purpose of subrogation

9
 Insurance principle:
Subrogation:
2. Principle of Subrogation (Nguyên tắc thế quyền)
Subrogation refers to the insurer’s right to "step into the shoes" of the insured
after compensating for a loss. Once the insurer pays for the damages, they are
entitled to claim recovery from any third party responsible for the loss.
Key Aspects:
•Transfer of rights: After the claim is settled, the insurer acquires the rights
to recover the loss from a third party that caused the damage.
•Prevents double recovery: The insured cannot claim twice for the same
loss.
Practical Example:
•Car Accident Insurance: Suppose you are involved in a car accident caused
by another driver. You file a claim with your own insurance company, and they
compensate you for the damages. Once they pay, they take over your right to
sue or claim from the negligent driver. The insurer can now file a lawsuit
against the at-fault driver to recover the money they paid to you.
•Property Damage Due to Negligence: Let’s say your house 10
is damaged
because of a contractor’s negligence. After your insurance company
compensates you for the damage, they can then seek to recover the money
CHAPTER 1. LIABILITY INSURANCE

Insurance principle:
+ Utmost good faith
 Insured
 Insurer
 Purpose

11
3. Principle of Utmost Good Faith (Nguyên tắc tin
tưởng tuyệt đối):
The principle of utmost good faith requires both the insured and the insurer
to act honestly and fully disclose all relevant facts during the insurance
process. Both parties must provide accurate and complete information about
the subject of insurance.
Key Aspects:
•Full disclosure: The insured must disclose all material facts
that may affect the insurer’s decision, such as health conditions
or previous accidents.
•Mutual honesty: Both parties must act honestly to ensure that
the contract is fair and reasonable.
Real-life examples:
•Life insurance: When applying for life insurance, you must disclose any
pre-existing health conditions, smoking habits, or participation in high-risk
activities (e.g., skydiving). If you fail to disclose a heart condition and later
die from a heart attack, the insurance company may refuse to pay the claim.
•Home insurance: If you apply for insurance for your home, you 12 need to
disclose if the house is located in a flood-prone area. If you do not disclose
this and later file a claim for flood damage, the insurance company may
EXERCISE:
FIND & EXPLAIN (REASON & RESULTS) A
PRACTICAL CASE OF INSURANCE COMPANY
AND CUSTOMER:
*Indemnity (bồi thường)
**Subrogation (Quyền thay thế)
***Utmost good faith (Tin tưởng
tuyệt đối)
13
4. Case of Prudential Vietnam and
the People's Artist, singer, lecturer Le
Dung

• Customer name: Artist Lê Dung.

• Time of the insured event:
In 2001, artist Lê Dung passed away from a
terminal illness. After the incident, her family
requested life insurance benefits from Prudential.
However, Prudential refused to pay, claiming that
the artist did not fully disclose her pre-existing
illness when she signed the insurance contract.
Her family filed a lawsuit to claim the benefits.
This became one of the most famous and 14

controversial insurance disputes in Vietnam at

More extra
reference:

15
 CHAPTER 1. LIABILITY INSURANCE

- Insurance terms
+ Insurer
+ Insured
+ Premium
+ Risks insured against
+ Reinsurance
+ Coinsurance
+ Broker

16
 CHAPTER 1. LIABILITY INSURANCE

- Insured/Assured
+ The person who has the insurable interest in the
property at risk.
+ Insurable interest is the relationship between the
insured and the insurer, whereby the assured suffer a
financial loss in the event that the subject-matter
insured is lost or damaged.

Example: The use of CIF term in international trade

+ Who has the insurable interest in properties?

+ When do people need to have insurable interest
17

in properties?
 CHAPTER 1. LIABILITY INSURANCE

- Subject /matter of insurance

• Anything in respect of which there is a risk of
loss from maritime perils may be the subject of
marine insurance.
• The subject matter of the insurance must be
capable of exposure to maritime perils.

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 CHAPTER 1. LIABILITY INSURANCE

- Premium
• An amount of money you pay for an insurance policy
• How to calculate the premium: basing on statistics,
probability and forecast
• Premium in Vietnam

- Risk insured against

Insurer only indemnifies insured for damage caused by risks
stated in the insurance policy

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 CHAPTER 1. LIABILITY INSURANCE

- Reinsurance

The practice of insurers (cedent) transferring

(cede) risks to other parties (reinsurers) in
order to reduce the likelihood of having to pay
a large obligation resulting from an insurance
claim.

To spread risk to enable the insurance industry

to function effectively and efficiently

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Reinsurance is often described as insurance for insurance
companies.
It’s a way for insurance companies to transfer some of the financial risk they
assume when issuing insurance policies. They do this by ceding some of their
risk to another insurance company, the reinsurer. This protects traditional
insurers against circumstances where they don’t have enough money to pay
out all of the claims owed.
By law, insurance must have enough capital to be able to pay out potential
future claims on all policies written. As the Insurance Information Institute
explains: “If the insurer can reduce its responsibility, or liability, for these
claims by transferring a part of the liability to another insurer, it can lower
the amount of capital it must maintain to satisfy regulators that it is in good
financial health and will be able to pay the claims of its policyholders.”
There are two basic types of reinsurance arrangements: facultative
reinsurance and treaty reinsurance.
Facultative reinsurance is designed to cover single risks or defined packages
of risks, whereas treaty reinsurance covers a ceding company’s 21
entire book
of business, for example a primary insurer’s homeowners’ insurance book.
Facultative reinsurance
With facultative reinsurance transactions, the ceding company can offer
an individual risk or a defined package of risks to a reinsurer. The
reinsurer retains the right to accept or reject the risk, just like the
primary insurer has the right to decide whether to insure a policyholder.
Under a facultative arrangement, the reinsurer will perform its own
underwriting for some or all of the policies to be reinsured, and each
policy is considered a single transaction.
Facultative reinsurance is typically used for high-value or hazardous
risks because the policies can be tailored to specific circumstances. It
can sometimes be less attractive to the ceding company, because the
reinsurer may insist the ceding company retains some of the liability on
the riskiest policies. In those scenarios, the ceding company may have
to approach multiple different reinsurers to transfer any remaining
liability.
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Treaty reinsurance
In treaty reinsurance transactions, the ceding company transfers all
risks within a book of business to the reinsurer. For example, a primary
insurer might transfer its entire book of commercial auto or all of its
homeowners’ risk. The two parties will enter into an agreement,
known as the treaty, in which the reinsurer is obliged to accept all
covered business.
Treaty reinsurance arrangements are typically long-term, and they will
accept policies that the ceding company has not yet written, as long
as they fit in with the treaty’s pre-agreed risk class. The reinsurer
typically expects to make a profit, but these expectations are
measured and adjusted over time.
In contrast to facultative arrangements, reinsurers do not carry out
individual underwriting on the risks assumed via treaty arrangements.
That responsibility is left to the ceding company, which is why
reinsurers will do lots of due diligence to ensure the ceding
23 company

is practicing adequate underwriting processes before entering a

‘Pro rata’ versus ‘excess of loss’:

Both facultative and treaty reinsurance arrangements can be written on either a pro
rata or an excess of loss basis.
Global reinsurer Munich Re describes ‘pro rata’ as: “A term describing all forms of
quota share and surplus share reinsurance in which the reinsurer shares the same
proportion of the premium and losses of the ceding company. Pro rata reinsurance
is also known as ‘proportional reinsurance’. Along with sharing proportionally in
premium and losses, the reinsurer typically pays a ceding commission to the ceding
company to reimburse for expenses associated with issuing the underlying policy.”
Pro rata reinsurance is typically quite easy to administer, and it offers good
protection against frequency and severity.
In an excess of loss agreement, also known as ‘non-proportional reinsurance,’ the
ceding insurer will retain a certain amount of liability for losses. It will pay a fee to
the reinsurance company for coverage above that retention, and that coverage is
generally subject to a fixed upper limit. Excess of loss arrangements are often more
economical in terms of reinsurance premium and cost of administration.
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CHAPTER 1. LIABILITY INSURANCE

- Reinsurance

Insur (cedent)
ed Insurer
Reinsurance

Reinsur (retroceden
t)
er
Retrocessio
n
Retrocessio
naire

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 CHAPTER 1. LIABILITY INSURANCE

- Coinsurance
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
and obligating itself directly to the common insured.
Insurer (a%)
Insure 1
d Insurer (b%)
2

Insurer (c%)
3
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 CHAPTER 1. LIABILITY INSURANCE
- Difference between reinsurance and
coinsurance
Reinsurance

40%
INSURED INSURER REINSURER
100%

Coinsura
nce 40% INSURER
1
INSURED

INSURER 2
60%

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 CHAPTER 1. LIABILITY INSURANCE

- Difference between reinsurance and

coinsurance
Reinsurance
Contractual
INSURED relationship INSURER REINSURER

Coinsura ns hip
a ti o INSURER 1
nce ct u
a l rel
t ra
Co n
INSURED

INSURER
2
28
 CHAPTER 1. LIABILITY INSURANCE

- Broker:

+ Role of broker
+ Commission for broker (around 15%
net premium)
+ Responsibility of broker when loss
happens

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 CHAPTER 1. LIABILITY
INSURANCE

Brokers offering cover in local market place

• Insurance broker is the one who advises persons on their insurance
needs and negotiates insurances on their behalf with insurers,
exercising professional care and skill in so doing.
• Brokers “shop around” for insurance at competitive rates on behalf of
their clients.
• Lloyd’s brokers are the only intermediaries who are permitted to
place insurance with Lloyd’s underwriters.
• Most of the larger brokers are members of Lloyd’s, a corporation of
brokers and insurance companies.
• Insurance brokers are regulated by the Financial Services Authority in
accordance with various standards of goods practice laid down under
30
the Financial Services Act 1986.
 CHAPTER 1. LIABILITY INSURANCE

The three main types of liability insurance in marine field:

1. P&I Club (for the shipowner’s liability)

2. TT Club (for the freight forwarder’s common liability)
3. Liability Insurance for FIATA Bill of Lading

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 CHAPTER 1. LIABILITY INSURANCE

1. P&I Club:
Club P&I Insurance
• The insurance covers the members’ legal liabilities to third parties

• The liabilities must arise out of the operation or management of

the ship
Risks covered by a P&I Club
• Personal injury / illness / death (Crew, Passengers, Stevedores,
Third parties):
o Crew repatriation/ Crew substitute expenses
o Loss of crew effects/ Medical costs
o Repatriation expenses/ Sick wages
o Deviation/substitution expenses
32

o Contractual entitlement
 CHAPTER 1. LIABILITY INSURANCE

1. P&I Club:
Risks covered by a P&I Club (cont.)
• Collision
• Wreck removal
• Towage
• Damage to fixed and floating objects
• Pollution
• Cargo damage/shortage
• Fines
• Stowaways
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 CHAPTER 1. LIABILITY INSURANCE

1. P&I Club:

P&I Uncovered Risks

Uncovered risks can be defined in:
• The Laws
e.g. The Marine Insurance Act 1906 in U.K sets out a number
of exceptions which apply to all policies unless they contain a
term to the contrary.
• The Institute Clauses which are generally attached
to the policy
The Institute Clauses contain a number of clauses exempting
the insurer from liability where the loss of or damage to the
subject-matter insured arises from certain causes
• The Policy
34

Sometimes exceptions are found expressly stated in a policy.

 CHAPTER 1. LIABILITY
INSURANCE

2. TT Club (for the freight forwarder’s liability):

• Though P&I Clubs insure the largest tonnage of ocean
traffic, not all liability risks in cargo transport are
insurable at P&I clubs.
• P&I Clubs are open only to its members who are essentially
the ship-owner. If the transport takes place over land or
with ships that do not belong to the ship owner and
that are not chartered by him, he will not be able to
insure his liabilities with his P&I Club.
35

• It is also difficult to insure the usual P&I club liabilities in the

 CHAPTER 1. LIABILITY
INSURANCE
2. TT Club:
TT Club was established as a mutual non-profit insurer,
similar to the P&I Clubs, using all premiums and investment
income for paying claims, administration costs and building
up reserves with the Board of Directors drawn from the
Club's membership.
Our insurance covers five main areas:
• Warehouse fires;
• Container risks for ship operators and others;
• Transport and logistics operator liabilities;
• Cargo handling facility liabilities and assets;
• Port authority liabilities and assets;
• Forwarders’ cargo all risks 36
 The
following
table
gives a
summary
of the TT
Club’s
cover

37
 CHAPTER 1. LIABILITY
INSURANCE

38
 CHAPTER 1. LIABILITY
INSURANCE
3. Liability Insurance for FIATA Bill of Lading
• The FIATA Bill of Lading (FBL) is a negotiable marine ocean bill of lading,
subject to completion according to ICC UCP 500 rules. It can also serve as a
Forwarder House Bill with a suitable endorsement or as a multimodal transport
document. The FBL is used worldwide under the same set of conditions,
offering the customer a substantial degree of protection.

• The liability of the forwarder under the terms of the FBL is based on
the UNCTAD/ ICC Rules for Multimodal Transport Documents (ICC
Publication 481).

• There are no specific insurance requirements for the use of the FBL other than the user
having arranged appropriate insurance with a first class insurance company to
cover their liabilities.

• A forwarder issuing a FBL must ensure that all insurance arrangements related
to these liabilities have been clarified.
39
Liability of different parties involved:
• Types of liability
Insurance against the insured’s potential legal liability to a third
party, whether in contract or tort (wrongful act), is
commonplace. In a number of instances, such insurance is
required to be effected by statute i.e. so called mandatory
policy. In other cases, liability insurance is taken by prudent
people to insure against a further range of risks.
• Liability of Insurance Company
The insurance company should be providing insurance that
properly covers the risks involved and to the proper liability
limits – and which applies to the appropriate legislative regimes
that may be involved in any given transit. 40
Liability of different parties involved (cont.):
•Liability of Insurance Company
o Proper Risks Covered
It is obvious that the insurance company shall underwrite the
proper risks involved by the insured. Should an improper risk be
covered by the policy, the premium charged for the policy is then
misled which directly affects the cost estimation on which the
company operates. The improper risk covered may also involve
such an amount of compensation to the policyholders that goes
beyond the company’s budgeting. The negative influence on the
company’s business operation of the improper risks is potentially
huge and severe.
o Proper Liability Limits
Proper liability limits concern the proper understanding and
estimation of the liability limitation that the insured are entitled to
in the circumstances where the insured is hold liable. The insurer
assumes the part of risks that go beyond the liability 41limitation
which allegedly rest on the insured, who in lieu of the insurance,
Liability of different parties involved (cont.):
• Liability of Insurance Company (cont.)
o Appropriate Legislative Regime
In intermodal transport or international transport, the transport
activity may cover a few countries that fall into different
legislative regimes. Different laws result in the disparity in
interpretation of rights and obligations of the parties involved, and
most of all, the imposition of liabilities on the party.
• Liability of Freight Forwarders
The development of international transport has changed the
scope of services of the traditional freight forwarder. In the past,
the freight forwarder was basically acting as an agent. In recent
years, a lot of freight forwarders abandoned their traditional role
as “paper pushing agents” and took the opportunity to advance to
the status of acting as carrier (NVOCC and NV-MTO). By doing so,
the freight forwarder is facing greater responsibility.42
Liability of different parties involved (cont.):
• Liability of Freight Forwarders
o As An Agent
Freight forwarder takes the traditional responsibility as an agent for
the cargo interests. In this case, the forwarding company acts on
behalf of the shipper or consignee. The forwarding company does
not take in any transport related risks as a carrier except the
services he renders pertaining to his agency agreement. Such
agency agreement usually covers ancillary services in relation to the
transport.
o As Carrier/Consolidator
Freight forwarders acting as carrier/consolidator takes full
responsibility of the whole transport. A house bill of lading is often
issued by the freight forwarders in such a position. Often, companies
acting as non-vessel operating MTO also sub-contract the ocean
voyage or even sub-contract the whole transport. This 43
may even
renders the forwarding company be liable to a higher extent
compared with any subcontractors involved, including the shipping
Liability of different parties involved (cont.):
• Liability of Freight Forwarders (cont.)
o Demarcation of Liability Risks of the Forwarder
When we consider the issues of liability insurance of the
forwarder, it will become evident that there are practical
situations in which the boundaries between the fields of the
different accountabilities are not always so sharply demarcated,
certainly not as sharp as it appears in insurance contracts.
o Dangerous Goods Transport
The potential liability for a freight forwarder is even higher when
the transport involves dangerous cargo. It is very important to
purchase the correct liability insurance coverage when carrying
dangerous cargo. The transport of dangerous goods entails the
certificate with respect to the specific type of goods, as well as
the compulsory requirements for packaging, labelling and
handling of the goods. 44
Liability of different parties involved (cont.):

• Liability of Carriers
According to the nature and the underlining legal basis that provoke the liability, liabilities
that a carrier assumes can be either of the following categories or a combination of two or
more:
o Public liability (sometimes called strict liability)
o Statutory liability
o Tort liability
o Contractual liability
(Public liability and Tort liability concern the liability the carrier incurs with regard to third
parties.)

45
The importance of insurance for freight forwarders
 When a freight forwarder is entrusted with someone else goods, they
become legally responsible for taking all the necessary steps to protect and
preserve that consignment. This means the forwarder is liable to the owner
for any subsequent damage or loss.
 The forwarder is legally entitled to limit the amount they are liable for,
provided that these trading conditions have been agreed in advance.
 Where goods are lost or damaged, it is possible that someone, during the
transportation, has been negligent. If there has been negligence, there is
likely to be a demand for compensation. The damage or loss might not have
been the fault of the forwarder, but if it was caused by someone the
forwarder is responsible for, for example a subcontractor, they will be liable
as if it were.

46
The importance of insurance for freight forwarders

Forwarding is not just about handling cargo, much of it is about using and
providing information. For example, forwarders should know:
 when a certain ship is due to leave
 a country’s import regulations
 the current rate of duty for a particular product
If forwarders get this information wrong, and a client relying on its accuracy
suffers a loss, the forwarder could be liable. They can use their trading
conditions to limit the amount of compensation they will be liable for in the
event of such mistakes.
To protect themselves against risks, forwarders can take out insurance to help
cover any compensation they may become liable for.

47