CAIB 3 CHAPTER 4 WORKBOOK QUESTION

your clients purchased hull coverage in the amount of $20 million. They also carry a P and I policy for $5 , million, They were responsible for a collision that caused $22 million damage to a ferry. Indicate how this calim would be paid.

$20 ,million from hull coverage and remain $2 million will be covered by P and I.

B.C fruit Inc. declared the value of the shipment to the insurer to be $200,000. At the time of the loss, the shipment was valued at $190,000. How much is the insured entitled to collect in the event of a total loss?

$200,000

shippers and cargo owners can insure total losses only. Identify three types of total losses and provide a brief description for each.

1) Actual total loss: shipment is totally lost...I.e) When a ship has sunk in deep water, there is no doubt there is an ''actual total loss.'' 2) Constructive total loss: when the value of the cargo is significantly less than the costs would be incurred in salvaging it...I.e) a ship carrying the head cargo struck a reef and sank. The value of all shipments on the vessel at that time of the loss was $10 million. It is estimated it will cost $12 million to salvage the property on the sunken vessel. 3) Total loss of a part: The total loss of a part will occur when there is a total loss to one shipper's cargo or even a part of it....I.e) The head shipment of garden tractors being carried on the deck of the vessel was lost overboard during a storm at sea. There was no loss to any other property. The loss to the head;s shipment constitutes a total loss of a part.''

bills of lading also function as a receipt for the goods. when goods to be transported are left with the carrier, various bills of loading may be provided to the shipper. Indicate the purpose served by the following bills of lading:

1) Clean bill of lading; This bill of lading is an acknowledgement that when the goods were received for shipment, there were no problems with them. If they arrive at their destination in a contaminated condition, the carrier shall be held accountable for the loss. 2) Count bill of lading; This bill of lading indicates the actual number of units or package being shipped. The carrier shall be responsible for any shortage when the goods arrive at their destination.

your client purchased coverage under institute cargo clause (b). Coverage is provided for total losses only but the policy contains a franchise clause for partial losses caused by perils of the sea. Explain how the amount of settlement is determined when a franchise clause is present.

1) Cover partial loss. 2) loss must be caused by perils by sea. 3) when exceeds certain percentage of the insured value....I.e) usually 3% - 5%

insurers will not provide coverage unless a pilot's record and report has been received. State three items of underwriting information contained in this report.

1) Description of the class of licence and endorsement. 2) Total hours of applicant as in common pilot. 3) Record all accidents in previous 5 years.

owner of ocean going vessels may require insurance. For.......?

1) For the value of the hull or vessel itself and. 2) Third party liability. 3) The value of the cargo being transported.

identify two types of policy used to insure ocean marine cargo and indicate when each would generally be used.

1) Individual policy and 2) Open policy.

Implied warranties do not appear in the policy wording but are understood by the parties to be present. They are as binding on the parties as are express warranties. Identifies three implied warranties and provide a brief explanation for each.

1) Legality 2) No delay 3) No deviation.

Aircraft hull policies can have as many as three different deductibles. Identify those losses for which a different deductible is generally charged.

1) Motion deductible. 2) Moored deductible....I.e) float or ski planes tied to docks or piers. 3) Not in motion deductible.

there is no coverage for loss, damage or expenses when the carrier is prevented from delivering the cargo to its designated port as the result of strikes.

1) Provide a detail description of the types of activities addressed by the strikes exclusion clause.---- No coverage for loss or damage to shipment or any increase in expenses out of labour or due on rest....I.e) striker, lock outs & riots. 2) Identify the clause that can be added to the policy to provide this coverage.----- Institute strike clause( Cargo)

when functioning as a contract of carriage, bills of lading provide a description of how are valued while being transported by the carrier. Indicate the extent of the carrier's liability under each:

1) Released Bill of Lading; there is no obligation upon carrier for the value of shipment being shipped. 2) Valued Bill of Lading; When this is used for a shipment, the carrier is liable for the value of the goods as declared by the shipper.

when functioning as contract of carriage, bills of lading describe the persons to whom the goods are to be delivered. Indicate who is entitled to receive goods under:

1) Straight Bill of lading; is used when carrier is obligated to deliver the goods to named consignee only. 2) Order Bill of lading; under this bill of lading carrier is permitted to leave goods with others who are entrusted to act on the consignee behalf... I.e) operator of a warehouse or shipping terminal.

Special sets of institute cargo clauses have been developed for certain types of shipments. Identify the three IIC's used to provide insurance for ocean marine cargo shipments.

1) Transit Clause. 2) Termination of contract or carriage clause. 3) Change of voyage/ ship clause.

state three exclusions common to ICC (institute cargo clause) ocean marine cargo policies.

1) Unseaworthiness and unfitness exclusion clause. 2) strike exclusion clause 3) war exclusion clause.

Identify five characteristics common to open policies.

1) amount insured are not indicated on policy. 2) coverage for goods of every description can be added any time. 3) coverage is automatic. 4) coverage can be issued with no expiry date. 5) premium rate for various classes of goods stated on the policy.

underwriters use a considerable amount of judgement based on experience when evaluating applications for insurance. Identify four factors that will be considered by the insurance underwriter when determining the rate to be charged for a policy of ocean marine cargo insurance.

1) carrier to be used. 2) the experience of the carrier or shipper 3) route and possible weather conditions. 4) conditions of harbours and political situation in ports of call. 5) type of cargo to be insured and any inherent hazards in such cargo. 6) methods of the packing cargo for shipment. 7) Perils to be insured and deductible amounts.

when property is discharged at a port not insured by the policy, the buyer or seller will incur additional costs to forward such cargo to another port.

1) identify the clause used to insure these additional costs.------- Forwarding charges Clause. 2) Identify three extra costs insured by this clause.---- a) Unloading, b) Store and, c) Forward the goods to destination insured by the policy.

Even though title may pass from the seller to the buyer under INCOTERM(S) contained in the sales contract, sellers should still continue to protect their interest until the goods have actually been paid for. To determine the extent to which this interest may be present, it is important to understand how goods are paid for in international commerce. Identify the methods of payment described below. C O L D

1) payment is required to be made at------- a) the time billing is presented; or ---- Sight Draft. b) within a specified number of days from the date of presentation ------ Time Draft. 2) functions like a charge account ....I.e) the buyer agrees to pay the seller at regularly agreed upon intervals ....I.e) monthly or quarterly ---- Open Account. 3) The seller agree to provide the buyer with goods after arrangement for payment is made between buyer's and seller's bank ----- Letter Of Credit. 4) Payment is required to be made before seller will agree to ship the goods ----Cash In Advance.

only losses caused by certain persons are insured by the policy. Identify ''who is entitled to operate the insured aircraft.

1) pilot who works for Transport Canada. 2) A pilot who is instructing an approved pilot...I.e) In such cases, that pilot will be more qualified than the approved pilot. 3) An Aircraft mechanic.

Your client proposes to send medical supplies to a hospital in S.E. Asia. The firm has asked for your advice on precautions it can take to prevent theft, pilferage or non-delivery problems. Provide three specific recommendations re : methods used when packing cargo for shipment.

1) product must be shipped only in new and well constructed packing. 2) Use adequately patterned gummed tapes. 3) use shrink wrapping, strapping and banding to improve package security.

define four parties have an insurable interest in a policy of cargo insurance.

1) sellers. 2) buyers. 3) carriers. 4) financial institutions.

''Carriers have an insurable interest in goods entrusted to them, the extent of which is indicated in the bills of lading insured by them'' Define BOL and primary three functions served by BOl.

1)Bill of lading it is document issued by the carrier responsible for transporting or forwarding the goods. 2)Primary functions served by bills of lading: a) As a contract of carriage between ship-owner and shipper. b) receipt for goods. c) as document to title of goods.

what two documents need to examine by broker to determine who has insurable interest in a specific shipment.

1)Terms of sale / sales contract. 2) Bill of lading.

State two advantages of the Plus Ten Percent rule.

1)a profit margin for the lost or damaged goods and. 2) provide insurance for normal increases in value that might occur during the ocean voyage.

INCOTERMS are standard terms used in sales contracts to help buyers and sellers determine their responsibility for a shipment. Identify three points addressed by the various INCOTERMS.

1)the point in transit at which seller has fulfilled its obligations. 2) the point at which who is responsible for transportation from one point to another buyer. 3) who is responsible to purchase insurance buyer / seller.

state two situations that could cause coverage to be terminated before the cargo reaches its destination...I.e) at another port.

1)when a route adopted other than customary and insurer is not promptly notified coverage ceases. 2) No delay permitted on wet.

state the minimum notice to which the insured is entitled when the insurer chooses to terminate the policy

10 days.

what is the minimum amount of Lay-up time for which a credit will be provided.

30 or more consecutive days will be eligible for a premium refund

How long are goods insured after they have been discharged at the final port?

60 days

insurers liability arising out of operation of aircraft, excluding airshows or air meets.

Airport Liability

what is the special marine term for partial losses.

Average.

Which INCOTERM it is buyer has no responsibility for insurance as this is included in contract price.

C.I.F.( cost, insurance & freight)

insurers an airline liability for loss or damage to goods of others being carried on it

Cargo liability.

Indicate whether this loss is Covered/ Not covered...."sometimes shipments may begin their journey before all parties have been notified. In fact, your clients were notified just today about such a shipment. They immediately purchased coverage to protect their interest. Two hours later, they were notified that the ship carrying their goods sank at sea three days ago"

Covered.

it is a condition of ocean marine cargo policies that goods must take the most direct route to their destination. While travelling along the coast of Africa, a storm at sea caused the captain to deviate from his route. While approaching shore, the ship struck a reef and sank. State whether the loss to insured cargo is covered / Not Covered.

Covered.

what is Common INCOTERMS Include...?

EX WORKS means...From the factory. F.A.S means............Free alongside. C.I.F means.............Cost, Insurance + freight.

Which INCOTERM it is -buyer is responsible for insurance from the factory to the final destination.

EX WORKS.

needed to insure liability of employers not subject to provincial workers compensation act.

Employers Liability compensation act

generally what country's guidelines do insurers world-wide use when determining how claims are to be settled.

English law and practice.

Which INCOTERM it is-buyer is responsible for insurance once goods are brought alongside the vessel or on the quay until final delivery.

F.A.S. ( Free Alongside ).

Which INCOTERM it is - Insurance is responsibility of buyer once goods are on board the vessel until final delivery.

F.O.B ( Free on Board )

your client recently purchased an ocean marine cargo insurance policy from your firm on a shipment of automobile parts. After the cargo is unloaded at Bordeaux, France, it will be transported by truck to the consignee in Paris. your client has also asked you to provide coverage for the transportation of the respecting the duration of coverage and indicate whether an additional policy is needed for the land journey.( Yes / No )

If after unloading at Bordeaux, France shipment is deliver with in 60 days no extra policy needed to be purchase otherwise. YES

define EX Works means '' From the factory'' and also give example.

In other words the seller's obligations to the buyer end when the goods have left the factory. From that point on, all insurable interest lies with the buyer...I.e) the buyer should purchase insurance for the remainder of the journey.

The forms used to insure ocean marine cargo are called ''institute cargo clauses.'' There are three different Institute Cargo Clauses. Your client has instructed you to purchase Institute cargo clause (A) - All risks on a shipment to Hong Kong. Identify the factor that determines which of the IIC's will be used for a particular shipment.

It will be depend on the type of cargo being shipped.

state the purpose of Lay-up endorsement.

Lay up endorsement provides for a portion of the premium to be refunded when the aircraft is not used for certain periods of time

your client wants to know if the contents should be clearly marked on the outside of each package. Yes/ No.

No- will make the thief's job eaiser.

insurers liability of business or individuals who do not own aircraft but who fly aircraft belonging to others.

Non-Owned Liability.

insurers liability of those selling aviation products or service.

Products liability

general average

Refers to a partial loss which is suffered by all parties having cargo on the vessel when such losses were voluntarily incurred for the safety of entire venture. The parties whose property was saved shall contribute to the losses of the parties whose property was sacrificed for the safety of the venture.

explain when the exclusion for ''unseaworthiness and unfitness" applies.

The exclusion applies when insureds are aware of the unseaworthiness of the vessel carrying their goods.

when is the Lay-up endorsement required to be purchased.

The lay-up endorsement at the inception date to be purchased. Only claims for lay-ups of 30 or more consecutive days will e eligible for a premium refund. any request for refund must be provided within 90 days of the policy expiry days.

STATE T/F: generally ocean marine cargo insurance policies cover all forms of transportation incidental to the ocean voyage.

True.

determining the insurable interest

a general rule of the insurance is that only persons having an insurable interest in property are entitled to purchase insurance on it.

your client cargo was damaged while undergoing an ocean voyage. The carrier has indicated that the law specifically excludes it from any liability for the loss. Identify four causes of loss for which the carrier will not be held liable to the owner or shipper of goods.

act of god , war, perils to sea, strike, riots.

define the territory insured by the policy

canada and the continental USA excludes Alaska.

the methods of payment for the goods / sellers interest terminate COLD

cash in advance open account draft letter of credit

State the method used by insurers "to measure the amount of an insured's loss under a cargo policy" Provide a brief explanation,

claims are paid on the basis of percentage of insured value lost........e.g. If loss is 40% of the agreed value of the shipment settlement value will be 40%.

Define Ocean Marine cargo insurance.

commercial property insurance policies do not insure property while undergoing an ocean voyage. The OMCI providing coverage for 1) the ocean voyage and 2) all forms of land and air transportation incidental to the voyage.

sometime goods may be sold before they reach the designated port. As a result, after they are unloaded, they will be transported to someone other than the initial consignee. Explain how this arrangement affects the coverage.

coverage ceases when this journey starts for new location not specified on policy.

Provide three similarities between institute cargo (Air) and the institute clauses used to insure ocean marine cargo.

coverage, exclusions and rating has similar approach.

shippers or cargo owners are unlikely to have any control over the vessel's course. Identify the clause insurers use to avoid penalizing these insureds when losses occur in waters not normally considered to be the most direct or customary route for the voyage.

deviation waiver clause.

explain what an express warranty is and provide one example of such warranty.

express warranty are those are specifically stated on the policy...I.e) An alarm warranty will be indicated on the policy when valuable property is being transported in vehicles of the insured or others after it is unloaded at its destination.

Why isn't this a concern for insurers?

face value is always paid in the event of total loss.

covers liability for loss to aircraft being stored or repaired by insured.

hang keeper's liability

most aircraft policies sold by brokerages are for aircraft that are privately owned and that have a private business/ pleasure use. Identify three hull damages coverage options available to insureds and provide a brief summary of the insuring agreement for each.

hull coverages ''A.'' - All risks. ------------------ ''B.'' - Ground & Taxiing Risk -------------------''C.'' - Ground Risks Only.

INCOTERMS ( International Commerce Terms ).

incoterms are terms developed by the marine industry to reflect the obligations of buyers and sellers for a cargo shipment.

two types of cargo insurance

individual policy or certificate. open policy purchased by shipper or consignee.

state three items of information that might be required by the underwriter regarding carriers to be used in transporting the cargo.

information respecting any connecting land, water or air transit to be provided for shipments.

define terms of sale / contract.

it is the agreement between buyer and seller of goods. It will be reflect insurable interest of such parties at different stages of the voyage.

coverage can be purchased for a variety of losses. Identify three types of losses that might be insured by owners of cargo.

partial loss, total loss only, total loss only with coverage for partial loss caused.

Identify the two types of partial losses that might occur when insuring cargo.

particular average general average

cash in advance

seller interest cease from the moment payment has been made.

open account

seller interest remains until goods paid for in full.

draft

seller retains insurable interest in goods until payment is made.

letter of credit

seller retains insurable interest until the letter of credit has been honoured by the buyer's bank.

particular average

simply means particular shipment has suffered a partial loss.

advantage of open policy

sums insured not stated. coverage is automatic. can be issued with no expiry date. premium rate stated on the policy. may insure any type of goods shipped anywhere in the world.

explain how losses are paid under a general average.

the parties whose property was saved shall contribute to the losses of the parties whose property was sacrificed for the safety of the venture.

INCOTERMS identify...?

the point in transit at which the seller has fulfilled its obligations. which of the buyer or seller is responsible for carriage from one point to another. which of the buyer is responsible for insurance.

underwriters are especially concerned about the susceptibility of the cargo to certain types of losses. Identify two major items of concern.

theft and pilferage losses.

Indicate True / False - An ocean marine cargo insurance policy insurers all forms of transportation incidental to the ocean voyage, including transportation by land, rail or air.

true

Indicate True / False -INCOTERMS are standard industry terms used to identify the duties of buyers and sellers under the term of sale.

true

Indicate True / False -The term of sale and bills of lading can be used to identify the parties having an insurable interest in a shipment.

true

Indicate True / False - even when title to goods passes to the buyer the seller may continue to have n insurable interest in them.

true.

Indicate True / False -the extent of the carrier's insurable interest in the shipment will be indicated on the bill of lading issued to the shipper.

true.

Indicate True / False -the letter of credit is the most common payment method for exports.

true.

Indicate True / False...''Unseaworthiness and unfitness" exclusion would not apply to most shippers"

true.

the indemnity provided by an ocean marine cargo policy is for the agreed value of the cargo, regardless of the fact that their value may be below or above the true value. Identify the clause contained in some policies that helps to establish the agreed value of a shipment of cargo.

valuation clause identify the factors which contribute to make up the agreed value of the cause insured by the policy.

placing a value on ocean marine cargo is not always easy. Identify five values or costs that should be considered when determining the amount of insurance to be purchased and provide a brief description of each. Acronym: VSODP

value of the cargo shipping costs or freight other expenses duties and taxes and. plus ten percent.

five value associated with cargo VSODP

value of the cargo shipping costs or freight other expenses. duties and taxes plus ten percent

Identify three circumstances relating to a loss in which the above exclusion would not apply.

war, seizure, hijacking

define C.I.F means '' Cost Insurance Freight'' and also give example.

when goods are shipped under the INTERCOM ''C.I.F. the seller is responsible for all of those items until the goods reach the destination indicated in contract. In other words the seller has an insurable interest in the entire journey and will need to purchase insurance on that basis. As cost means the amount paid for the goods by the buyer any possible increase in the value of the goods during the ocean ship should be insured by the buyer.

define F.A.S means '' Free Along Side'' and also give example.

when goods are shipped under the INTERCOM ''F.A.S. the seller is responsible end when the goods left alongside the vessel. Which will have been specially named in the contract so the seller should have insurance to that point. The buyer will need insurance after the goods have been unloaded alongside the vessel.

define F.O.B means '' Free On Board'' and also give example.

when goods are shipped under the INTERCOM ''F.O.B. the seller is responsible for the cargo until it is actually on board the vessel indicated in the sale contract In this case - 1) seller need insurance until the goods are actually on board and 2) the buyer needs insurance for the remainder of the journey.

Under what circumstances would the face value of the policy be paid

when loss is a total loss the face value of the policy be paid.

the insured decided to terminate the policy. under what conditions would the insured not be eligible for a refund.

when loss paid is in excess of premium charged.

explain the purpose of change of voyage clause

when shipment is redirected to a destination other than named in the policy ,coverage will be provided for that shipment so long as prompt notice is given to the insurer.

what are reports of Lay-ups required to be provided to the insurer.

within 90 days of the expiry of policy term.

B.C. Fruit, Inc. is sending $500,000 of apples to japan, the payment of which is guaranteed at a future date under the terms of sale. The firm's business manager has asked you whether there is a need to purchase cargo insurance. Indicate whether you would recommended the company purchase its own cargo insurance. Yes/ No. Explain the answer.

yes the payment method is used is a future date that mean seller has not so his payment. So it is recommended that seller should place insurance on it.