Exploring Different Types of Marine Insurance Clauses

Sea transport plays a huge role in international trade, with over 11 billion tons of goods shipped each year across oceans. With so much at stake, marine insurance plays an important role in protecting these valuable shipments.

To properly insure your cargo, it’s important to understand the different clauses in marine insurance. These clauses outline what’s covered, the responsibilities of both parties and any exclusions. By familiarising yourself with these details, you will be better prepared to manage risks and choose the right marine insurance plan for your business.

In this blog, we will take a closer look at the prominent marine insurance clauses and what they entail.

Different Clauses in Marine Insurance Policy

If you're new to marine insurance, all the technical terms and clauses can feel a bit overwhelming. To make things easier, here’s a breakdown of some of the most important marine insurance clauses:

Institute Cargo Clauses (ICC)

The Institute Cargo Clauses are an essential part of marine cargo insurance that protects your cargo in transit. They outline which risks are covered in case of damage or loss to the shipment. 

First introduced by the Institute of London Underwriters in 1982, these clauses have been updated over time to reflect the changing risks in global trade. The three main types of Institute Cargo Clauses:

• ICC (A): This ‘all risk’ clause offers the broadest coverage, protecting your cargo against almost all risks, except for a few exclusions like war, nuclear threats or natural deterioration (inherent vice). Because of the comprehensive protection, the premium for ICC (A) is typically higher.
• ICC (B): While ICC (B) provides less coverage compared to ICC (A), it still covers a number of named risks, such as fire, stranding, theft, or collisions. It’s a middle-ground option for those seeking protection from common risks but at a lower premium than ICC (A).
• ICC (C): This clause provides the most limited coverage, focusing only on a few specific risks like fire, collisions, general average and average sacrifice. The premium for ICC (C) is lower due to restricted coverage.

Valuation Clause

The Valuation Clause determines the value of the insured property. This could be based on the purchase price, market value, or a pre-agreed amount between you and the insurer.

It’s an important clause because it sets a limit on how much compensation you can receive in case of a loss. No matter the situation, the compensation won’t be more than the agreed value in the policy.

For example, suppose you’ve insured a shipment of electronics for $100,000 based on its purchase price, and it’s damaged during transit. In that case, the insurance company will compensate you the full $100,000 as outlined in the valuation clause.

Sue and Labour Clause

The Sue and Labour Clause focuses on minimising loss. It encourages the insured party to take reasonable steps to prevent or minimise losses to the insured property once a loss has occurred. The main goal is to reduce the overall loss that the insurer would need to cover.

The insurer will reimburse the insured for any reasonable expenses incurred to prevent or minimise further loss. This is included in many policies under terms like “Preservation of Property” or “Duties in the Event of Loss.”

Conditions for Recoverable Expenses:

• The expenses must be directly tied to preventing further loss that the insurer would otherwise have to cover.
• The loss being minimised must be either real or likely to happen soon (imminent).
• The actions taken should primarily benefit the insurer.
• The expenses should be focused on prevention, not on correcting or repairing damage that has already occurred.

Without this clause, the insurance would only cover the existing damage, not the efforts to stop more damage from happening.

For example, if a ship is approaching a typhoon and the crew anticipates that the storm could cause significant damage to the cargo, they may decide to divert the ship to a safer port. The costs of this diversion, such as fuel and docking fees, would be reimbursed under the Sue and Labour Clause.

Also Read: Guide To Understanding Common Port Charges And Dues

'At' and 'From' Clause

The 'At' and 'From' Clause explains when the insurance coverage starts and ends. It sets the geographical limits of the coverage. 

For example, if your policy states that coverage starts "at a factory in Germany" and ends "at a factory in India," your cargo is covered from the time it leaves the factory in Germany until it is delivered to the factory in India.

Barratry Clause

The Barratry Clause provides coverage for losses caused by the wrongful acts of the ship’s captain or crew, such as theft, fraudulent selling of cargo, or intentional sinking of the ship. It protects the cargo owner from financial losses due to such deliberate misconduct.

Warehouse to Warehouse Clause

Introduced in the late 19th century, the Warehouse to Warehouse Clause extends coverage beyond just the sea journey. It protects your cargo from the moment it leaves the origin warehouse until it reaches the destination warehouse, even if multiple modes of transportation are involved (like road, rail, or sea).

The clause also extends coverage to include additional protection for the cargo during the pre-shipment and post-discharge stages.

However, the clause doesn’t cover gaps between the shipping date and the insurance policy's effective date. For example, if your goods are shipped on 5 June but the insurance policy starts on 10 June, the clause won’t backdate coverage to include those missing five days.

Change of Voyage Clause

Your insurance policy clearly outlines the details of the voyage, including the ports of departure, arrival, and the planned route. When the ship’s destination is voluntarily changed after the journey has begun, it’s called change of voyage.

If this change occurs and isn’t covered by the policy, the insurer is no longer liable for any losses from the moment the decision to change is made. This remains true even if the ship hasn’t yet deviated from its original route at the time of the loss.

However, if the policy allows for changes in the voyage, the cargo can still be covered. But this continued coverage will come with an adjusted premium and possibly new conditions. 

Inchmaree Clause (Negligence Clause)

The Inchmaree Clause, also known as the Negligence Clause or Additional-Perils Clause, is commonly included in marine insurance policies to expand coverage beyond the traditional risks of the sea. It covers situations where losses happen because of crew negligence or mechanical defects, which aren’t usually covered under standard policies.

This clause covers a ship's loss or damage due to reasons such as::

• Error in navigation
• Defects in the hull, boilers, shaft or machinery
• Mistakes or negligence by the crew or ship personnel
• Latent defects that cause damage over time
• Issues arising during docking or loading/unloading operations
• Design flaws
• Mechanical breakdowns or operational errors in the engine room
• Malfunctions in machinery leading to incidents like explosions or breakdowns

Before this clause was introduced, marine insurance policies only covered natural perils like storms or rough seas. Now, with the Inchmaree Clause, incidents caused by human error or machinery issues are included, giving broader protection. 

The clause was named after the British steamer Inchmaree, which sank in 1884 in Liverpool harbour, leading to its creation.

Also Read: Preventing Shipping Damage: Common Causes and Tips

Touch and Stay Clause

The Touch and Stay Clause in marine insurance specifies the ports where a ship must stop during its voyage. If the specific ports are not mentioned in the policy, the ship must take the customary route and stop only at ports that are traditionally part of that route.

If the ship deviates from this route, the owner may lose the right to compensation in case of damage or loss.

However, there are exceptions where deviation may be allowed. For example, if the ship needs to change its route to ensure the safety of passengers, crew, or the ship itself, the insurer may permit this and still honour claims.

Both to Blame Collision Clause

The Both-to-Blame Collision Clause in ocean marine insurance applies when two ships collide because of negligence on both sides. In such cases, the owners and shippers of both vessels share the losses, divided according to the value of each ship's cargo and interests before the accident.

Strikes, Riots, and Civil Commotions Clause (S.R. & C.C.)

This clause covers losses that occur due to strikes, riots, locked-out crew or civil disturbances that might affect the shipping or cargo, such as damage caused during labour strikes or riots.

Memorandum Clause

Introduced in the 18th century, the Memorandum Clause is in place to protect the underwriters or the marine insurance company and limit their liability for certain types of losses. It excludes certain risks that come with the nature of the goods being insured.

For example, the policy won’t cover things like ordinary wear and tear, spoilage of perishable items (inherent vice), or normal leakage unless there is a general average or the ship is stranded. 

For instance, if your company is exporting grapes and some spoil during transit, the insurance company won’t be liable for the loss, as fruits are perishable by nature.

Jettison Clause

The Jettison Clause in marine insurance provides coverage for cargo that is intentionally thrown overboard to save the ship and its crew during an emergency. This action, known as "jettison," might be necessary if the ship is in danger due to bad weather, imbalance, or other critical situations.

For example, if a storm causes the ship to become unstable, the crew may have to throw some cargo overboard to stabilise the vessel. In such cases, the Jettison Clause ensures that the loss of the jettisoned cargo is covered by the insurance.

The loss resulting from jettison is treated as a general average loss, which means that all parties involved in the voyage (shipowner, cargo owner, etc.) share the loss equally. This clause is essential for protecting the interests of the insured in situations where sacrifices must be made to save the ship and crew.

Why Should You Understand These Marine Cargo Insurance Clauses?

Understanding the various clauses of marine cargo insurance is essential for anyone involved in international shipping. It can help you:

Choose the Right Coverage

These clauses help you select the coverage that best suits your cargo's needs and the risks involved in the journey.

File and Settle Claims Effectively

If you are familiar with the clauses, you can file accurate claims with proper documentation, making the claims process smoother and faster.

Plan Risk-Management Strategies

By understanding the risks outlined in the policy, you can develop strategies to minimise potential issues, such as crew negligence or mechanical failures,

Ensure Comprehensive Protection

By understanding all the clauses, you ensure that your cargo has complete protection from departure to delivery, including any potential gaps in coverage.

Avoid Disputes

Understanding what’s covered, what’s excluded, and your rights and obligations under the policy helps prevent misunderstandings and reduces the likelihood of disputes with the insurer.

Secure your Cargo with Pazago

What are some of the major concerns before you send out your shipment? You worry about protecting your cargo, making and receiving international payments, clearing customs, keeping all stakeholders informed, and handling the necessary documents. Now, Pazago can do all this and more.

Here are some of the features you get with Pazago that take the worry out of international shipping:

• Effortless Insurance: Skip the paperwork—Pazago offers fully digital, seamless insurance processing, making it easy to handle any issues that arise.
• Unified Communication: Bring all key parties into one conversation with Pazago’s shared Inbox, ensuring everyone stays in sync and communication is clear.
• Simplified Document Management: Centralize all your important trade documents. Quickly create, organise, and access essential files like invoices and certificates with ease.
• Live Cargo Tracking: Track your shipments in real-time and stay updated on the movement of your goods. This way, you get a head start to resolve any potential issues.
• Smooth International Payments: Lock in the best Forex rates for global payments through Pazago’s partnership with JPMC and save on currency conversion costs. 

Why Go For Pazago’s Cargo Insurance?

You need insurance when you’re already dealing with stress, and Pazago is here to make things easier—not harder. Here’s how Pazago simplifies the process:

• Pazago’s cargo insurance is fully digital, allowing you to manage your policy without any paperwork.
• The claims process is straightforward and hassle-free, making it easy to handle any issues quickly.
• Your cargo is securely insured through Pazago’s partnership with ICICI Lombard, ensuring reliable coverage for your shipments.

Worry less, ship more—secure your cargo with Pazago’s reliable insurance today!

Conclusion

Marine insurance is essential for protecting your cargo during international shipping. By understanding the various clauses of marine insurance policies, you can ensure that your cargo is adequately covered and that you are prepared to handle any potential losses.

In addition to understanding the clauses, it's also important that you choose a reliable insurance provider like Pazago. When it comes to your cargo, Pazago offers comprehensive coverage and simplified claims processes so that you can recover from damage smoothly. 

Beyond insurance, Pazago handles everything from your purchase order to delivery, giving you complete peace of mind throughout the shipping process.

From insurance to delivery, Pazago has you covered. Secure your shipment today!

Frequently Asked Questions

How do we ensure compliance with marine insurance clauses?

To make sure you’re following marine insurance clauses correctly:

• Know Your Policy: Read through the clauses in your marine insurance policy, such as coverage limits and exclusions, so you fully understand what’s required.
• Stick to the Terms: Follow the terms set out in the policy, including approved routes, ports, and shipping methods. Any changes could affect your coverage.
• Stay in Contact with Your Insurer: Keep your insurer informed of any changes or issues during shipping to prevent non-compliance.
• Keep Your Records Updated: Maintain detailed and accurate documentation of your shipments to ensure you can demonstrate compliance if needed.

What is the FOB clause in marine insurance?

The FOB (Free on Board) clause means the seller is responsible for the goods until they are loaded onto the ship. After that, the buyer takes responsibility, and their insurance covers any risks during transit.

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