Marine cargo insurance and Incoterms: who actually owns the risk at sea
Most uninsured cargo losses are not caused by a refused claim. They are caused by a seller and a buyer who each assumed the other side's Incoterm obligation covered it. Here is where risk really transfers.
Marine cargo claims are rarely lost in the adjusting. They are lost months earlier, in a sales contract, when a seller in Chennai and a buyer in Rotterdam read the same three-letter term and each concluded the other side was buying the insurance.
The cover follows the goods, not the vehicle
This is the first thing to internalise, and it is what separates marine cargo from every other transit-related policy. A marine cargo policy insures the consignment, wherever it happens to be and whatever is carrying it. It is not a policy on the ship, the truck, the aircraft or the transit warehouse.
The practical consequence is that the carrier's own liability is no substitute for it. Carrier liability is limited by convention to a figure per package or per kilogram that bears almost no relationship to the value of what is inside, and it is defensible on a long list of grounds. A consignment worth ₹40 lakh in a container that goes over the side is not a ₹40 lakh claim against the shipping line. It is whatever the limitation regime says, which is usually a small fraction of it.
Institute Cargo Clauses: A, B and C
Cover is written on one of three standard sets. The names are unhelpfully bland and the difference between them is enormous.
| Clause set | Basis | Typically covers |
|---|---|---|
| ICC (A) | All risks | Loss or damage from any external cause, except the stated exclusions. The burden sits on the insurer to show an exclusion applies. |
| ICC (B) | Named perils | Fire, explosion, stranding, sinking, collision, general average sacrifice, jettison, washing overboard, and entry of sea, lake or river water into the vessel, container or place of storage. |
| ICC (C) | Named perils, narrowest | Broadly the major casualty events only - fire, explosion, stranding, sinking, collision, general average sacrifice, jettison. No water ingress, no washing overboard. |
The gap that catches people is the one between B and C. Under C, water getting into the container is simply not an insured peril. Under B it is. Under A it is covered along with theft, non-delivery and the everyday handling damage that accounts for most real-world claims. For manufactured goods moving in containers, ICC (A) is usually the only sensible answer, and the price difference is far smaller than the coverage difference.
Incoterms decide who has to buy it
An Incoterm in the sales contract does two separate jobs. It allocates costs, and - the part that matters here - it fixes the precise point at which risk in the goods passes from seller to buyer. Whoever carries the risk at the moment of the loss is the party who needed the policy.
| Term | Risk passes | Who needs cargo cover |
|---|---|---|
| EXW Ex Works | At the seller's door, before loading | The buyer, for the entire journey including the inland leg inside the seller's country |
| FOB Free On Board | When the goods pass the ship's rail at the port of loading | The seller up to the rail; the buyer from the rail onward |
| CIF Cost, Insurance and Freight | Also at the ship's rail - but the seller is contractually obliged to arrange and pay for cover to the destination port | The seller buys it; the buyer is the one who claims on it |
| DDP Delivered Duty Paid | On arrival at the named destination | The seller, the whole way |
CIF deserves a warning of its own. The seller must insure, but under Incoterms 2020 the minimum obligation is the narrowest cover, ICC (C), unless the contract says otherwise. A buyer who sees CIF and relaxes may be relying on a policy that covers neither water ingress nor theft. If you buy on CIF, specify ICC (A) in the contract in writing, or buy a contingency cover of your own.
The loss nobody insured
A Chennai exporter ships auto components worth ₹42,00,000 to Rotterdam, FOB Chennai, with freight at ₹1,80,000. Seawater enters the container in heavy weather in the Arabian Sea and the consignment is a write-off.
The seller's position: we sold FOB, our risk ended at the rail, and we held cover for the inland movement to the port. Entirely correct. The buyer's position: the seller shipped it, so there must have been a policy. Entirely incorrect. Risk passed at the ship's rail in Chennai and the buyer carried it from that moment with nothing in place. The loss, goods plus freight, some ₹43,80,000, falls on the buyer less whatever limited sum can be recovered from the carrier.
Now price the alternative. Marine cargo is conventionally insured on CIF value plus 10%, the uplift allowing for the buyer's lost margin and incidental costs. Here that is roughly ₹48,20,000. At an ICC (A) rate near 0.08% for containerised auto components on a standard route, the premium is about ₹3,900.
| Item | Amount |
|---|---|
| Invoice value of goods | ₹42,00,000 |
| Freight | ₹1,80,000 |
| Insured value at CIF plus 10% | ₹48,20,000 |
| ICC (A) premium at 0.08% | ₹3,900 |
| Actual uninsured loss | ₹43,80,000 |
Nobody declined this claim. Nobody disputed it. There was simply no policy, because two commercially competent parties each believed the other had bought one.
Open cover, or a policy per shipment
If you ship occasionally, a specific voyage policy is fine: one consignment, one route, one certificate.
If you ship regularly, an open cover or open policy is the correct instrument. It is a standing agreement under which every shipment falling inside an agreed description, route and limit is automatically covered from the moment it moves. You declare shipments periodically and the premium is adjusted against those declarations.
Three reasons it wins for anyone doing more than a handful of shipments a year:
- No gap. Cover attaches automatically. Nobody forgets a consignment because the person who normally arranges the certificate happened to be on leave.
- A better rate. The insurer is pricing an annual flow rather than a single voyage, and the rate reflects that.
- Banks and letters of credit. Certificates can be issued against the open cover on demand, which is what documentary credit terms usually require.
Three questions worth asking before the next shipment
- What Incoterm is on the contract, and where exactly does risk pass? Not who paid the freight - where risk passes.
- Is there a policy covering that leg, held by whoever bears the risk on it? If you cannot name the policy and the party holding it, assume there is none.
- Which clause set? If the answer is C, or nobody knows, that is your finding.
This is unglamorous work and it is exactly where a broker earns the fee, because reading a sales contract against a policy wording is not something a portal does. We place marine cargo and open cover for exporters and importers out of Chennai, and it usually sits alongside the rest of a company's programme - stock, plant, liability - under commercial insurance. If you are shipping on terms nobody has actually checked, that is worth an hour of somebody's time.
