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The importance of Cargo Insurance Are you covered properly? ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO.

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Presentation on theme: "The importance of Cargo Insurance Are you covered properly? ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO."— Presentation transcript:

1 The importance of Cargo Insurance Are you covered properly? ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO Premier Provider of Innovative Insurance and Surety Solutions

2 Avalon Risk Management is the officially endorsed provider of Cargo Insurance for the SCTC - Special Pricing for Members -Avalon partnering with Great American to provide reliable and comprehensive coverage -All-Risk coverage -Avalon has the authority to handle claims.

3 About Avalon Chicago Boston New York Atlanta Miami Houston Los Angeles San Francisco Seattle Charleston Toronto Mid-sized insurance broker owned by founding management. Eleven regional offices located in major North American ports. Transportation insurance specialists.

4 What you will learn © Avalon Risk Management History and Overview Need for Insurance General Average Basics: Different coverage types Insuring shipments and Avalon technology Claims

5 History & Overview Traces of Cargo Insurance were found as early as 3000 B.C. –Piracy was also a common event. By the 17th Century, London was the hub of Cargo Insurance. –Edward Lloyd founded a coffee shop where underwriters and traders discussed insurance transactions. –Underwriters formed Lloyds of London. © Avalon Risk Management

6 The need for cargo insurance

7 Why Insure? Rigors of shipping –Loss, damage and theft –General Average (ocean) Carriers liability –Carriers only pay claims when liable –Liability is often limited –Often have improper insurance or insufficient funds Usually in trucking or warehousing © Avalon Risk Management

8 Ocean shipments

9 Ocean Shipments In the United States, the Carriage of Goods by Sea Act (COGSA) governs liability for ocean cargo. –Limits recovery to $500 per package or customary freight unit (CFU) when the carrier/NVOCC is negligent. What is a package? The smallest unit of packaging declared on the bill of lading. This could be a whole container, a pallet, etc. Examples: –One 40-foot container S.T.C packages of almonds. If the carrier is liable, liability is limited to the lesser of the cargos value or 1000 x $500. –One 40-foot container S.T.C packages of almonds. If the carrier is liable, liability is limited to the lesser of the cargos value or 1 x $500 In Canada, Hague-Visby applies. – SDR per package or 2 SDR per kilo, higher than COGSA. Rotterdam Rules signed in 2009 will be the new liability convention. Needs to be ratified first. © Avalon Risk Management

10 17 Hague-Visby Defenses 1.Neglect of carrier in the navigation or in the management of the ship 2.Fire (unless by fault of the carrier) 3.Perils, dangers, and accidents of the sea 4.Act of God 5.Act of war 6.Act of public enemies 7.Arrest, restraint, or seizure 8.Quarantine restrictions 9.Act of omissions of the shipper or owner 10.Strikes, lockouts, or labor stoppage 11.Riots and civil commotions 12.Inherent defect, quality, or vice of the goods 13.Insufficiency of packing 14.Insufficiency or inadequacy of marks 15.Latent defects not discoverable by due diligence 16.Saving life or property at sea (general average) 17.Any other cause arising without the actual fault of the carrier © Avalon Risk Management

11 General Average

12 Ocean loss. A voluntary sacrifice to save cargo/vessel/life. –Extraordinary expenses are incurred (i.e., jettison, fire). All cargo is seized. Amount of GA loss is determined. –Must post security deposits to release cargo. © Avalon Risk Management

13 How General Average Works Assume $50 million in cargo was sacrificed. The loss represents 20%of the contributing value. Cargo owners must contribute 20% of their respective cargo values, even if their cargo wasnt damaged. © Avalon Risk Management Vessel and freight value$200 million Saved cargo value$50 million Contributing value (total)$250 million

14 General Average A guarantee must be posted to release the freight. If the cargo was insured, the insurance company provides the guarantee. Without Cargo Insurance, cash must be posted. General Average claims can take years to resolve. © Avalon Risk Management

15 Domestic shipments: Air, Road, Rail, Warehouse

16 Domestic Shipments Domestic air, intrastate road carriers, and warehouse operators often limit liability to $0.50 per pound or $50 per shipment. –Based on bill of lading or warehouse receipt. Carmack Amendment applies to interstate carriers. –Dictates full value unless opted out by bill of lading, tariff or contract. Some carriers may have inadequate or no liability insurance and be unable to fund a loss out of pocket. © Avalon Risk Management

17 Summary of Liability Limits StatuteModeCustomary Limit Carriage of Goods by Sea Act (COGSA)Ocean$500 per Customary Freight Unit Warsaw Convention (International)Air$9.07 per pound or $20 per kilo Montreal Protocol (International)Air19 Special Drawing Rights (SDRs) Domestic Air (based on AWB)Air$0.50 per lb. and/or $50 per shipment Warehouse Operators (based on receipt)Warehouse$0.50 per lb. and/or $50 per shipment Local Carriers (based on bill of lading)Intrastate$0.50 per lb. and/or $50 per shipment Carmack AmendmentInterstate Full value, unless limited by rate/contract

18 Cargo Insurance Basics You can insure freight by: –Vessel –Aircraft –Truck/Rail –Warehouse © Avalon Risk Management

19 Cargo Insurance Basics If your policy is with a London Company or a company following the standard London format, your conditions will be governed by the London Institute Clauses (ICC) A, B and C, which are similar to American terms All-Risk, FPA and WA. Please refer to your cargo policy and our manual for a comparison. Coverage TypeWhats covered? All-RiskEverything but whats excluded Free of Particular Average (FPA)Named perils only With Average (WA)Adds heavy weather peril to FPA

20 Cargo Insurance Basics All-Risk coverage –All risks except exclusions –Typical exclusions: (consult manual/policy) Improper packing Abandonment of cargo Rejection/delay by Customs Inherent vice © Avalon Risk Management

21 Insuring Shipments

22 Variations in Value Must insure 100% of value, freight, duty and 10% margin to fully collect in the event of a claim. –Failure to insure 100% of cargo can result in a co-insurance penalty. Sample calculation: Invoice value: $100,000 Freight charges: +$ 20,000 Sum$120, percent + $ 12,000 Insured Value$132,000 Duty:$ 6,000 * can typically be insured for 1/3 of the marine rate © Avalon Risk Management

23 Co-Insurance Penalty Sample co-insurance penalty calculation: –Insured value: $132,000 As determined on previous slide –Insured amount:$ 52,800 To save money, you insure the shipment for 40% of the value, or $52,800) –Claim amount:$ 40,000 Heavy weather caused damage to the goods –Amount received:$ 16,000 Since the goods were only insured for 40% of the value, the client will only receive 40% of the claim amount. © Avalon Risk Management

24 Web Merlin Avalon streamlines the cargo insurance process with Web Merlin, an Internet-based certificate issuance program. © Avalon Risk Management Web Merlin verifies that: –The commodity is approved –The origin/destination countries are approved –The shipments value is within the policy limits –The marine rate and premium is correct –Insuring conditions are on certificate

25 © Avalon Risk Management Web Merlin

26 Cargo insurance claims © Avalon Risk Management

27 Actual claims © Avalon Risk Management Typhoon Vicente created rough waters and capsized this ship carrying a shipment of walnuts valued at $96,000 off the coast of China. –What is the carrier liable for? $0 Carriers are not liable for Acts of God If uninsured, you would receive $0 If insured, $FULL CLAIM PAID

28 Actual claims A trucker picked up a shipment of almonds at the shippers warehouse to be transported to be transported to a distribution center. Total loss valued at $68,000 The driver caused an accident on the freeway by colliding with another truck. What would you do if the shipment was uninsured? –Local truckers limit liability to $.50 per pound or as little as $50 maximum per shipment. –You would have to pay nearly the full value out-of-pocket. © Avalon Risk Management

29 Actual claims Two separate truck loads of walnuts a week apart were stolen in Tehama County valued at over $300K Thief got a hold of the correct purchase order from an online load board and impersonated a real trucking company. 3 times day in America cargo theft occurs, in the state of California it happens 2X as much as thee rest of the country. Because it was a theft, it is very difficult to receive any compensation, cargo insurance pays immediately. © Avalon Risk Management

30 Actual claims © Avalon Risk Management Exports of pistachios valued at 100,000 from Los Angeles to China were on this ship. Luckily, our clients shipment was on the other end of this ship and was safe and was not affected by the fire. But, a General Average was declared. Would you know what to do? –You didnt purchase Cargo Insurance. Your shipment wasnt damaged, but you must post cash for its release. –If the shipment was insured, the insurance company would handle the General Average guarantee.

31 Actual claims © Avalon Risk Management -Pistachios contracted mold on its voyage to Germany -Surveyor was hired to examine the cargo -Claim was filed on behalf of my client -Claim was paid in less than 30 days

32 Timeframes to File Claims © Avalon Risk Management Air shipments Damage (Hidden/Concealed)7 (Warsaw) or 14 (Montreal) days from delivery Delay14 (Warsaw) or 21 days (Montreal) from delivery Non-delivery120 days from date of issuance Statute of LimitationsSuit filed within 2 years of arrival date Ocean Shipments Visible Loss/DamageImmediately Non-visible Loss/Damage3 days from discharge/delivery Statute of Limitations Per COGSA, suit filed within 1 year from date of delivery. Hague-Visby /FIATA bill of lading limit suit to 9 months Domestic Loss/DamageImmediately or 7 days from delivery Statute of Limitations Varies by carrier per bill of lading, freight receipt or tariff. On interstate trucking, the Carmack Amendment limits action to 9 months after date of delivery. In Canada, varies by province. Ontario: 2 years. Warehouse Loss/Damage 60 days after delivery of goods or 60 days after the warehouse receipt holder is notified of the loss, whichever is shorter Statue of Limitations 9 months after delivery goods or 9 months after the warehouse receipt holder is notified of the loss, whichever is shorter NCBFAA Terms & Conditions of Service Loss/Damage/Negligence Per time frames for ocean or air above on entries, 75 days from liquidation Statute of Limitations2 years from date of loss or damage CIFFA Trading Conditions Loss/Damage7 days from the completion of transit Non-delivery/any other event45 days from when the goods shouldve been delivered Statute of Limitations9 months

33 Questions? Any questions? © Avalon Risk Management

34 For more information Kevin Ricciotti Direct line ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO Premier Provider of Innovative Insurance and Surety Solutions


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