An unexplained loss or shortage of goods is excluded when it occurs from a vehicle owned, leased or operated by the insured party. This most common occurrence would be theft of property from the vehicle, either by the insured or employees of insured. This would also exclude theft from unrelated parties as a result of the insured’s vehicle being stolen or not securely locked.
While cargo insurance can help you avoid financial losses at sea, there are common insurance exclusions that you should keep in mind. The following are the most common exclusions that an insurance company will not cover. While they may not be covered by insurers, the causes of these exclusions can be easily avoided with proper planning and practices by the shipper.
The loss of or damage to goods in transit, which can be foreseen, is called inherent vice. This arises from the condition and physical nature of the goods or products in question. With inherent vice, damages are not a result of supply chain processes. Rather, they are contributed to an internal cause. An example would include unstable chemical compounds that could react and lead to an explosion.
Cargo insurance provides protection for goods in transit, either by sea, air, rail, or road.
Here’s a detailed breakdown:
What Cargo Insurance Includes
- Physical Loss or Damage: Cargo insurance generally covers physical loss or damage to goods while in transit. This coverage typically applies from the point of origin until delivery, depending on the policy terms. It may include accidents like vehicle collisions, sinking ships, or aircraft crashes.
- Weather-Related Incidents: Many policies cover damage caused by severe weather, such as storms, hurricanes, and rough seas. Goods exposed to harsh conditions, particularly during sea transport, are at high risk.
- Fire and Explosion: Fire or explosion during transport or storage at a designated location is generally included. The policy protects against substantial loss in such cases, which can devastate business operations.
- Theft and Piracy: Theft is a significant risk during transportation, especially in regions with high crime rates. Maritime piracy is also covered, safeguarding goods against hijacking or theft at sea.
- General Average: This principle requires all cargo owners on a vessel to share the costs of losses when a portion of the cargo is sacrificed to save the ship and remaining cargo during an emergency. Cargo insurance usually covers such contributions, protecting businesses from unexpected financial burdens.
- Loading and Unloading Risks: Many policies include damage that occurs during the loading and unloading of goods. Mishandling or accidental drops can lead to costly losses.
- War and Strikes Coverage: Some policies offer additional protection against risks associated with war, strikes, riots, and civil commotions. However, these are often available as extensions rather than standard coverage.
What Cargo Insurance Excludes
- Improper Packaging: If goods are damaged due to poor or inadequate packaging, the insurance does not cover the loss. The onus is on the shipper to ensure goods are properly secured and packed to withstand transport conditions.
- Ordinary Leakage and Wear & Tear: Natural loss in volume or weight, such as evaporation or minor wear, is excluded. Goods susceptible to spoilage or minor deterioration are not covered under these circumstances.
- Inherent Vice: Damage resulting from the inherent nature of the goods, such as decay, rust, or spontaneous combustion, is excluded. For example, fruit that spoils in transit or iron that rusts without external impact falls under this exclusion.
- Willful Misconduct: If damage or loss is a result of intentional acts by the insured, the insurance policy will not cover the loss. Fraudulent or reckless behavior voids any claim eligibility.
- Delay: Losses or damages due to delays, even if caused by a covered risk, are generally excluded. This means businesses cannot claim compensation for lost profits or spoiled goods resulting from transport delays.
- Nuclear and War Risks: Damage from nuclear events or acts of war is typically excluded. Policies may have war risk extensions, but these come at an additional premium and only apply to specific circumstances.
- Financial Default: Losses stemming from the insolvency or financial default of a carrier, like an airline or shipping company, are usually not covered. Businesses must choose reputable carriers to minimize this risk.
- Mechanical or Electrical Derangement: Damage to goods due to malfunctioning machinery or electrical systems is often excluded unless there is evidence of external impact. This applies to delicate equipment or machinery that stops functioning without visible damage.
