THE OPEN CARGO POLICY Basic ‘A marine insurance policy, referred to in this chapter as an “Open Cargo Policy,” may be written to include not only goods to be shipped via ocean, but goods to be shipped via air, truck, rail or other conveyance—therefore potentially including international, domestic or inland transit, warehouse coverage and more, Your Open Cargo Poliey is like an umbrella, covering all shipments for which you have instructions | from your customer to insure. These instructions must | peer smigh eomarder be in writing and are generally obtained for each eee shipment in the “Shipper’s Letter of Instructions” to | Shipment ine the freight forwarder. Or to streamline the process, — ‘you may simply obtain a single letter from the shipper | shea, or importer, requesting insurance on all oftheir a shipments unless otherwise instructed In order to feel more comforiable discussing and offering eargo insurance to ‘your customers, it will first te helpful for you to understand the basic insuring conditions and common clauses of an Open Cargo Policy. After we have established this foundation, later chapters will cover the sales and marketing of ‘your cargo insurance, Insuring Conditions ‘There are two primary categories of insuring conditions offered to shippers —“Free of Particular Average” (FPA) and “All Risk.” As the name implies, “All Risk” has, the broadest insuring conditions and covers the greatest number of perils. FPA is usually only used when “All Risk” coverage cannot be obtained due to the elevated risk associated with the product or shipping conditions. A subcategory of FPA “With Average” (WA), and is simply an extension of coverage to FPA which is also discussed briefly in the pages which follow. “Free of Particular Average” (FPA) “Free of Particular Average” is an old English term meaning “free from partial loss” “average” means “partial loss”), Therefore, this clause basically says that partial losses are not covered. However, almost all FPA conditions have been broadened to include payment for some partial losses, as the following pages will outline. ‘© 2006 Roanoke Trade Services, Ine. oITHE OPEN CARGO POLICY 32 BY OCEAN, partial losses are covered under FPA if they are directly caused by ¥ Stranding Burning —- Collision of the Carrying Vessel BY AIR, partial losses are covered under FPA if they are directly caused by: v Fire ¥ Lightning ¥ Crash ¥ Collision Total losses covered under FPA are those perils referenced above, and in addition, include the following perils common to hazards of the seas: ¥ Violent, Turbulent Action of the Forces of Nature Operating in and about the Sea ¥ Theft and/or Misappropriation of the Ship ot Cargo by the Captain or Seamen With the underwriter’s approval, FPA conditions may be broadened by adding coverage for Theft and Non-Delivery of the entire shipping unit. If coverage for partial losses due to Heavy Weather and Seawater Damage o Jettison and Washing Overboard are required, then generally “With Average” terms would be considered. Please note, however, that unless your policy already includes special conditions for these coverages, you must call Roanoke Trade for prior approval and a rate, Note that if your FPA coverage is written under English Conditions (FPAEC), then the coverage is somewhat broader—remember to check your policy. ‘The following are goods that generally may be insured with FPA terms only: ¥ Used Merchandise ¥ Bulk Goods Y Bagged Goods that are nof Containerized Y Goods Shipped with an On-Deck Bill of Lading ‘© 2006 Roanoke Trade Services, Inc.THE OPEN CARGO POLICY ith Average” (WA) ‘The “With Average” terms simply expand FPA to include partial losses from heavy ‘weather and seawater damage. Basically you can say that: “With Average’ Seawater Damage FPA + Partial Losses from Heavy Weather & Shore Clause In addition to covering the basic hazards of the sea and air, FPA and/or WA conditions can include a Shore Clause to extend coverage for partial or total losses ‘occurring on land if caused by any of the perils listed below. ¥ Collision of Truck or Train ¥ Derailment of Trein ¥ Accident of Carrying Conveyance ¥ Fire of Conveyance ¥ Lightning ¥ Sprinkler Leakage ¥ Cyclones Y Hurricane ¥ Earthquakes Y. Floods Y Collapse of Docks or Wharves ‘© 2006 Roanoke Trade Services, Inc. 3THE OPEN CARGO POLICY x4 “All Risk” Most new merchandise that has been properly packed for export and is not unusually susceptible to loss, will be insured “Alll Risk” under your Open Cargo Policy.' When insured under these terms, coverage is extended to include loss due to “physical loss ‘or damage from any external cause.” However, do not be misled by the term “All Risk” because not everything is covered. The following outlines the most common exclusions of “All Risk” terms.” Most Common Exclusions under “All Risk” Terms’ ¥ Improper or Inadequate Packing Packing should be sufficient to: = Withstand frequent handling, jarring and jostling + Withstand extremes of weather and temperature = Discourage or complicate pilferage and tampering ¥ Abandonment of Cargo ¥ Rejection by Customs or other Governmental Authorities ¥ Failure to Pay or Collect Y Inherent Vice = Infestation, failure of product to perform intended functions, and latent defects ¥ Loss Caused by Delay ¥ Loss of Use and/or Market ~ Seasonal merchandise such as calendars and holiday cards ¥ Nuclear ¥ Losses in Excess of your Cargo Policy Losses at Port more than 15 Days after Discharge ¥ Losses Inland more than 30 Days after Discharge (60 days in South America) ¥ Barge Movements, Unless Specifically Endorsed Y Goods Subject to an On-Deck Bill of Lading = Always ask for an under-deck or optional bill of lading Y Losses due to Strikes, Riots & War (covered separately by a stand-alone war policy) mit vil Commotions (generally covered by a war policy) "Use your approved commodity list to verify the merchandise your policy covers. Always check your actual policy for its specific exclusions. {© 2006 Roanoke Trade Services, IneTHE OPEN CARGO POLICY General Average Clause General Average is a coverage clause that is always included in FPA and “All Risk” conditions. A General Average is a partial loss that must be bome proportionally by all parties involved in the voyage (cargo owners and the vessel owner). Following are two examples of what a General Average Clause will cover. Example 1: _A vessel is stranded on a sand bar. Containers are jettisoned to lighten the load and free the vessel to open water. In this case, all parties to the voyage, including cargo owners whose goods arrived safely, must contribute to the loss, Example 2: During a voyage a vessel develops engine trouble and must be towed into an unscheduled port for repairs. A General Average is declared by the captain, and all parties to the voyage (including, cargo owners) must contribute to the loss. Without “All Risk” or FPA cargo insurance, the cargo owner must post a cash deposit with the vessel owner in orde: to get their cargo released. This deposit could be required for up to two or more years, until such time the General Average adjustment is completed. It might also never be returned if the determined proportional amount owed by the cargo owner exceeds the amount of the deposit. For more details on how the actual claims process would work in a General Average situation, see the Claims Procedures section of this manual. ‘Comparison of Basie Insuring Conditions ‘The chart on the following page outlines which perils are covered for both partial and total losses under the insuring conditions “Free of Particular Average” (FPA), “With “Average” (WA), and “All Risk.” (© 2006 Roanoke Trade Services, Inc. 3(ROANOKE TRADE acral nce la Since 1935 Comparison of Basic Insuring Conditions Loss Caused By or Resulting Insuring Terms From One of the Following Perils | FPA, WA __| All Risk! Stranding Yes Yes Yes Sinking Yes Yes Yes Buming Yes Yes Yes Collision Yes Yes Yes Faults or Errors in the Management Yes Yes Yes of the Vessel Latent Defects in Hull or Machinery Yes Yes Yes (if unknown to the insured) Explosions Yes Yes Yes General Average Yes Yes Yes Heavy Weather No* Yes Yes Seawater as a Result of Heavy Weather No’ Yes Yes Jettison No Yes Yes Theft and/or Misappropriation of the Ship | No* No* Yes or Cargo by the Captain or Seamen Theft of Entire Shipping Package No! No’ Yes ‘Non-Delivery of Entire Shipping Package | __No? No® Yes Fresh Water No No Yes Improper Stowage by the Carrier No No Yes Hook Damage, Mud and Grease No No Yes Pilferage No No Yes Leakage No No Yes Breakage No No Yes ‘although above perils are indicated as covered under “All Risk,” depending upon commodity, certain exclusions may apply. Always refer to your policy's Approved Commodity list. *Partial losses are not covered for these perils, but total losses are covered. *May be added to FPA or WA for additional premium, (0220 seta Tate Sens