A container ship carries cargo belonging to hundreds of unrelated businesses. Working out who bears the loss when something goes wrong is the function cargo insurance performs.
Why carrier liability is not enough
International conventions limit what a carrier owes for lost or damaged cargo, usually to an amount calculated per package or per unit of weight. That limit bears no relationship to the value of the goods.
A container of electronics and a container of sand attract similar limits under these rules. The shipper of high-value goods recovers a small fraction of the loss.
Carriers also have defences for events outside their control, including certain perils of the sea. Cargo insurance exists to cover the gap between the loss and what the carrier owes.
What the policy responds to
Cover is written against named perils or on a broader all-risks basis, with exclusions. Physical loss and damage during transit are the core, including handling at ports and inland legs.
Standard exclusions typically cover inherent vice, insufficient packing, ordinary leakage and delay. Delay is significant because a cargo arriving late but intact is usually not a covered loss.
War and strikes cover is normally arranged separately and priced by route. Premiums for particular waters change as conditions there change.
Who is supposed to insure
Delivery terms in the sales contract determine at what point risk passes from seller to buyer. That point may differ from where responsibility for arranging carriage sits.
Under some widely used terms the seller must arrange insurance for the buyer's benefit, at a minimum level of cover. Under others neither party is obliged to insure at all.
Gaps arise when both parties assume the other has arranged cover. Reading which term applies is the practical protection against that.
The rule that surprises first-time shippers
Where a ship's crew deliberately sacrifices some cargo or incurs extraordinary expense to save the voyage, the loss is shared among all cargo interests in proportion to value. This principle predates modern insurance.
An uninsured shipper whose own goods arrived undamaged can therefore receive a demand for contribution. Release of the cargo may depend on providing security for it.
A cargo policy responds to that contribution. Without one, the cash must be found before the goods are released.
How claims are actually settled
Recovery requires evidence that the damage occurred during the covered transit, which is why condition surveys at handover matter. Notations on transport documents carry weight.
Insurers who pay a claim generally take over the shipper's rights against the carrier and pursue recovery themselves. Time limits for such action are short and vary by convention.
Policy wordings, applicable conventions and limitation periods differ by jurisdiction and route, and they are periodically revised.