Goods in transit insurance

What is goods-in-transit insurance?

Goods-in-transit insurance is a contract by means of which the insurer assumes any damage and material losses caused to the transport equipment and/or the objects being transported during transport by water, rail, air or sea.

Although goods-in-transit insurance is not obligatory, insuring the goods being transported against any risk that may exist during their transfer from origin to final destination is highly recommended.

Indemnity underpins all insurance, including goods-in-transit insurance. The principles of indemnity are based on the following:

• No one can claim compensation in excess of the damage suffered.
• The insurance cannot constitute a cause of profit or benefit for the insured party.
• Compensation from the insurer must not produce a more advantageous situation than if the loss or damage had not occurred.

Types of goods-in-transit insurance

Goods-in-transit insurance takes various forms, depending on a series of factors.

Goods-in-transit insurance documents

The main document in goods-in-transit insurance, as in any other insurance, is the policy document which must exist in order to be valid.

The insurable risks are specified in the insurance policy in which the insurer, in exchange for the payment of a premium by the insured, is obliged to compensate the latter for losses or damage caused to the goods during normal transport, in accordance with the general, particular or special conditions agreed.

There are two types of policy:

• Floating policy: when cargo is moved continuously and in significant quantities.
• Specific policy: for minor and irregular shipments. Any individual insurance policy is taken out because there is no floating policy, or because goods must be insured in a specific policy due to their type or value.

In certain cases, the insured party requests the issuance of a document which proves the existence of the insurance policy. The certificate is the document issued by the insurer that attests to the validity of an insurance contract, and in which the name of the contracting party, the value and nature of the goods insured, the planned journey or transport, and the conditions of cover are included.

Goods-in-transit insurance cover

Among the most common items covered by insurance policies are the following basics: accidents (tipping, sinking or derailing), breakdown, grounding, collisions, loss and theft, etc. In such cases, the cost of salvaging the goods is also covered.

For more specific cover, clauses created for more concrete cases are used as a template. The most important clauses internationally are the Institute Cargo Clauses (ICC) devised by the Institute of London Underwriters (ILU). The most commonly used are:

• ICC (A): all-risk cover for loss or damage with some exceptions, such as wear and tear, improper packaging, delays, insolvency, or due to war or strikes, for which additional cover can be taken out.
• ICC (B): which focuses on risks related to fire, explosions, crashes, collisions, tipping, breakdowns, loss of value due to the motion of the waves during loading and unloading, losses during transportation, plus the same exceptions as ICC (A).
• ICC (C): which has similar characteristics to ICC (B) but less cover. Excluded, for example, are losses caused by the entry of water during loading and unloading or by loss or misplacement of goods.

The following are taken into account in determining the insurance value:

• Commercial invoice value.
• Domestic freight costs.
• A percentage for contingencies or other import expenses.
• Up to 10% severance, subject to prior agreement with the insurer.

What the insurance does not cover

Pese a que existen pólizas de muy amplia cobertura, generalmente los seguros no cubren:

How to claim insurance in the event of loss or damage

An insurance policy is not automatically activated when loss or damage occurs. The first thing to do, if there are indications that the goods are damaged, is to give immediate notice, both in writing and by telephone, to activate the insurance policy. Any process or claim made outside of the policy period will not be considered.

The minimum documentation that must be submitted is usually:

• Insurance policy and claim letter.
• Commercial invoice, packing list and a copy of the transport documents (AWB, BL or Consignment note).
• Letters of formal complaint to those potentially responsible for the damage and/or loss. Through these letters, the beneficiary will hold third parties who have been involved in the operation responsible.
• Photographs of the damaged cargo.
• Records of complaints made to the authorities (in cases of theft).

If the damaged goods are perishable goods, additional documentation is required:

• Cold storage chart and thermograph readings.
• Pre-shipment report and survey.
• Packing list, checked and signed by customers.

Late submission of any of the above documents, or of any other document requested by the insurer, delays the resolution of the claim.

By Ana Dominguez
BPE Training Corporate