Glossary of Terms—Ocean Cargo Insurance

ALL OTHER PERILS AND MISFORTUNES
Phrase in Cargo policy meaning perils of the same nature as those described specifically in the Perils clause

ASSAILING THIEVES
Forcible taking of property but not sneak thievery

AVERAGE
Any partial loss or damage, due to insured perils

AVERAGE AGREEMENT
Document signed by cargo owners by terms of which they agree to pay any General Average contribution properly due so that cargo may be released after a General Average loss has occurred

AVERAGE CLAUSES
Clauses in Cargo policy that determine the amount of Particular Average loss recovery

AVERAGE IRRESPECTIVE OF PERCENTAGE
Broadest "with average" clause. Losses by insured perils are paid regardless of percentage

BARRATRY
Fraudulent, criminal, or wrongful act by ship's captain or crew that causes loss or damage to the ship or cargo

BILL OF LADING
Contract of carriage between shipper and steamship company which is the ship owner's receipt for the goods and is the document of title to them

CARGO WAR RISK POLICY
A separate Cargo policy covering cargo while waterborne only (except at transshipping point, which may be on land or water). Insures against war risks

CERTIFICATE OF INSURANCE OR SPECIAL POLICY
A document prepared by the insured, the producer, or the insurance company to provide evidence of insurance to the buyer or bank for an export/import shipment. The certificate contains an abstract of the more important conditions in the policy

CONSIGNEE
Individual or company to whom cargo is shipped or consigned

CTL (Constructive Total Loss)
An instance in which the cost of recovering and/or repairing damaged goods would, when recovered or repaired, exceed the insured value

DECLARATION
A form filled out by insured and sent to the insurance company when reporting individual shipments coming within the terms of an Open Cargo policy

DEVIATION
A vessel going to some other point or taking some course other than that described in the Bill of Lading

FPAAC (Free of Particular Average, American Conditions)
Average clause that limits recovery of partial losses under the Perils clause to those losses directly resulting from fire, stranding, sinking, or collision of the vessel

FPAEC (Free of Particular Average, English Conditions)
Same as FPAAC, except that partial losses under the Perils clause are fully recoverable if the vessel has been stranded, sunk, burned, been on fire, or in collision, without requiring that the damage actually be caused by one of these perils

GENERAL AVERAGE
Loss resulting from a voluntary sacrifice of any part of the vessel or cargo, or an expenditure to safeguard the vessel and the rest of the cargo. When such a loss occurs, the ship owner and all cargo owners pay it on a pro rata basis

INCHMAREE CLAUSE
(So-called for a famous legal decision involving a vessel of the same name.) Covers losses resulting from a latent defect in the vessel's hull or machinery and losses resulting from errors in navigation or management of the vessel by the master or crew

INVOICE
Document that shows the terms of sale; contains full description of goods, selling price, charges, discounts, etc.

INSURED VALUE
Usually computed by adding the invoice cost, guaranteed freight, other costs, and insurance premium plus a percentage, commonly 10 percent. This usually represents landed value

JETTISON
Voluntary dumping either of cargo or of ship's material or stores overboard, to protect other property from a common danger

LANDED VALUE
Wholesale market value at destination on final day of discharge

MARINE EXTENSION CLAUSE
Cargo policy clause that continues coverage on goods during deviation, delay, re-shipment, and transshipment, or any other variation in normal transit beyond the assured's control

MARINE SURVEYOR
Specialist who determines the nature, extent and cause of loss and/or damage

MASTER'S PROTEST
Sworn statement by captain describing any unusual happening during the voyage

PARTICULAR AVERAGE
Partial loss sustained by goods insured

PERILS OF THE SEA
Hazards from natural forces in or about navigable waters (windstorm, rough weather, etc., but not fire, explosion, etc., which are perils on the sea)

TERMS OF SALE
The following are brief descriptions of the more common Terms of Sale (fully defined in the "American Foreign Trade Definitions of 1941"), setting forth the obligations of the seller and buyer
  • FOB (Free on Board)
    The seller assumes charges and risk for the goods until they are loaded on board a named carrier at a named point, which may be an inland point or a port. The buyer is responsible for any loss or damage after loading on board the carrier. The buyer should specify FOB to control insurance without relying on the "other fellow"
  • FAS (Free Alongside)
    The seller assumes charges and risk until the goods are delivered alongside the vessel. Loss or damage from alongside the vessel is the responsibility of the buyer
  • C&F (Cost and Freight)
    The seller assumes responsibility for charges and for loss or damage until the goods enter the carrier's custody or are loaded on board the vessel. The buyer is responsible for loss or damage at this point
  • CIF (Cost, Insurance, and Freight)
    The seller's price includes cost of the goods, Marine insurance, and all transportation charges to the named destination point. Seller also provides War Risk insurance as obtainable in his or her market at the time of shipment, at buyer's expense (unless seller has agreed that buyer provides War Risk insurance). Seller should specify CIF to maintain maximum control of the shipment until the transaction has been completed

TERMS OR METHODS OF PAYMENT
If the insured is not paid for any reason, he/she must dispose of the goods and, therefore, still has an insurable interest. Following are the more common terms or methods of payment:

  • Collection by Draft
    The seller bears the risk until he/she is paid. If for some reason, the buyer does not accept the shipment, the seller has the problem of disposing of the goods. By arranging the insurance, the seller can minimize the risk of loss
  • Open Account
    When sales are made on an open account, the seller has financial risk similar to collecting by draft. Here again, the seller should attempt to arrange the insurance
  • Letter of Credit
    In this procedure, the buyer establishes credit in U.S. money through his or her bank in favor of the seller. If the seller collects by this means, the letter of credit often stipulates that he/she arrange the insurance

VALUATION CLAUSE
Provides basis for determining insured value of a shipment under the Open Cargo policy

WAR RISK
Insurance against loss or damage to property as a result of war risks

WAREHOUSE TO WAREHOUSE
An export/import policy clause that provides protection from the shipper's warehouse and during ordinary course of transit to the consignee's warehouse