Except for the CIP and CIF Incoterms® rules, all the Incoterms® rules stipulate in article A3b)/B3b) that the seller and the buyer have no obligation towards each other to conclude a contract of insurance against the risk of loss of or damage to the goods during carriage.

This absence of contractual obligation to provide for insurance cover is not intended to suggest that the parties have no interest in making such a contract of insurance. It merely says that every buyer and seller is free to decide whether or not it makes a contract to insure its own risk during carriage up to (as a seller) or from (as a buyer) the place of delivery as agreed upon under article A4 of any Incoterms® rule.

Carrier’s liability, transporter’s insurance and cargo insurance

Sellers and buyers are well advised to examine carefully whether or not they contract for insurance cover against the risk of loss of or damage to the goods during the carriage as a carrier is not liable for everything that may go wrong during transportation.

Carriage is often a shared undertaking, with goods being passed from one carrier to another and manipulated by terminal operators, stevedores etc. When upon arrival at destination it is found out that the goods are lost or damaged, it is not always easy to prove who in the supply chain is to blame and to what extent.

Moreover, the carrier may have made reservations on the transport document when receiving the goods from the consignor (e.g. regarding the packaging). Such reservations, making the transport document ‘unclean’, specific circumstances (e.g. deck load), the nature of the damage (consequential damages, delay, …) or the causes of the damage (e.g. nature of the goods, accident caused by a third party …) may result in the carrier being exempt of liability. In such situations the carrier and its liability insurance, if any, may refuse to cover the loss.

Last but not least, the international transport conventions and the laws defining the duties and obligations of the parties to a contract of carriage have limited the liability of the carrier to a maximum amount. This liability cap varies depending on the applicable convention per mode of transportation. When the value of the goods exceeds this statutory amount, the carrier and its insurer will only cover part of the losses unless the carrier has been reckless or caused the damages by gross negligence or intent. Furthermore, certain damages such as those caused by delay, consecutive damages (customs and excise duties, …) etc. may not be taken into account.

Shippers may contractually try to extend this limitation of the carrier’s liability by having a declaration of value or of interest accepted by the carrier. However, when allowed, such contractual agreement will result in a higher freight cost. Moreover, such agreement will not render the carrier liable for losses and damages for which the carrier is not liable, given the specific circumstances.

IMPORTANT

When a carrier claims that it has insurance, it is often understood that the carrier has contracted an insurance policy covering its mandatory liability under the applicable transport convention or law. This does not necessarily mean that the full value of the goods is insured nor that the insurance provides for coverage if the carrier is not liable for the damages.

It is important to note that a transport document (such as a bill of lading), although evidence of the contract of carriage, is not evidence of the carrier’s insurance for its liability to cargo. The carrier’s insurance is evidenced only by the contract of insurance agreed by the carrier and its insurer, and is subject to the terms and conditions of that contract.

Sellers and buyers should therefore always consider cargo insurance, covering full damage to the goods while in transit, independent of the liability of the carrier and covering the liability they may incur as ‘merchant’ (salvage charges, environment, …). They should also examine the scope and amount of the insurance coverage required. Such risk assessment will take into consideration issues including the nature of the goods, their conditioning and value, the quality of the carrier and its mandatory liability, the transport mode and route...

Subscription policies

Given the overall need of cargo insurance complementing the liability of the carrier and its liability insurance and the – subject to specific circumstances relatively low – insurance premiums payable, companies may decide to conclude a ‘subscription’ or ‘global’ policy, covering all their incoming and/or outgoing shipments