Know the different types of transport insurance

Responsibility of the carriers | Special exoneration cases and the removal of the liability ceiling | Insurance solutions | In case of damage

Responsibility of the carriers

Carriers are said to be responsible for the goods entrusted to them. This is true... but there are a number of exceptions.

The Principles of Responsibility

Carriers are, in effect, responsible for the goods entrusted to them, nevertheless, this responsibility is very structured and markedly limited. Where carriers are paid in relation to the weight and the volume of what they are carrying and not in relation to the value of the goods, it makes sense that their responsibility is expressed in the same manner so as to remain proportional to their remuneration. This, however, has significant consequences for the shipper in the case of damage to the goods, the carrier will indemnify according to precise restrictions related to weight and irrespective of real value.

The current responsibility limitations expressed in S.D.R. (Special Drawing Rights - rate around Euro 1.2819 at April 03, 2013), are as follows:

• Land transport - CMR Convention: 8.33 SDR per kilo.
• Air transport - Warsaw Convention: 16.5837 SDR per kilo.
• Maritime transport - Wisby and the Hague Convention: 2 SDR per kilo or 666.66 SDR per package whichever is the higher being applied.

It is on these bases that carriers indemnify possible damage to goods. As an example, a crate of spare parts between Antwerp and Warsaw (Weight 29kg and Value Euro 9,900) - Crate pillaged, arrives empty - Loss Euro 9,900 - the receiver expresses reservations of this status on the delivery slip - The carrier indemnifies as per his liability: 29 kg x 8.33 SDR x 1.2819 = Euro 309.67. The remaining loss to be borne by the shipper will amount to Euro 9,590.33. If the crate had done the same journey by air, the indemnity paid by the airline would have been 29 kg x 16.5837 SDR x 1.4070 = Euro 616.50 and the loss to be borne by the shipper is Euro 9,283.50.

Special exoneration cases and the removal of the liability ceiling

Though carriers are liable for possible damages to goods entrusted to them, it is important to know that in certain cases, this liability could be lifted or in the contrary situation, have the ceiling could be removed.

Exoneration of Responsibility

For a carrier to indemnify a shipper in the case of damage, he has to be liable. As the caretaker of the goods, there is a presumption of liability if he does not deliver them in the same condition he received them in.
On the other hand, if the the carrier can prove that he is not liable, he does not owe any indemnity.

The carrier can claim exoneration of liability when the damage to the goods is a result of a Force Majeure event. The notion of Force Majeure is subject to extensive case law, which is evolving constantly; nevertheless the normal accepted definition is - an event having the triple characteristics of being UNPREDICTABLE, UNAVOIDABLE and EXTERNAL. If these three criteria are present, the carrier could be exonerated of his liability and does not owe any indemnity in compensation for loss suffered.

Case of Force Majeure

• Earthquake (unavoidable, unpredictable and external).
• Tornado (unavoidable, unpredictable and external).
• Armed robbery (unavoidable, unpredictable and external)

Cases Not Recognized as Force Majeure

• Predictable storm.
• Workforce upraising (not external to the caretaker of the goods).

The Removal of the Liability Ceiling

In the contrary situation, certain gross errors committed by a carrier will cause the removal of his liability ceiling and he would no longer indemnify the loss based on the limits of his liability but would indemnify for the entire loss suffered by the shipper or his beneficiaries. These cases are usually defined by a court, but here are some examples of cases where a carrier had to compensate for the whole loss:

• The carrier of the Ariane prototype reactor - Collision with a bridge - Destruction of the reactor - Gross error: the carrier has to check the height of his load and plan the itinerary accordingly.
• Dispatch of hi-fi material - Sale of cargo by the carrier for his own profit - Gross error: theft by the carrier or one of his employees.
• Road accident - Goods destroyed - The driver was driving in a state of extreme intoxication - Gross error.

Once gross error has been established, which normally requires a court hearing, the issue of the carrier's or his insurance's liquidity remains. This can often hinder the recovery of the amount lost.

Insurance solutions

Faced with these inconveniences and these difficulties in the relationships between shippers and carrier companies, there is a solution to secure the flow of goods and therefore trade operations.

The AD VALOREM Insurance

By subscribing to an AD VALOREM (on value) insurance coverage, the risk of damage to the goods is transferred to an insurance company which will pay compensation, not by virtue of a liability principle but only on the basis of the damage to the goods. In the case theft of the goods, the insurance company will reimburse for the entire loss and would then turn against the carrier to recover the amount that this latter owes according to the limitations of his liabilty. The insurance premium will be based on the value of the goods and will be expressed in the form of an insurance rate. It is possible to increase the rate by up to 20% of the value declared to the insurance company in order to cover administrative costs.

The Two Main Types of Insurances.

The "COMPREHENSIVE" insurance: as the name indicates, covers all risks from shop to shop including pre and post land transportation. It can be applied to air, maritime and land transport. In the majority of case, it is the necessary insurance.

The "War and Mine Risk" insurance: is always taken separately from the others and is subject to a different pricing system. Its average cost varies around 0.03% depending on the degree of risk on the route that the goods are going to take. It covers sabotage, piracy, torpedoing, etc. and applies to air, maritime and land transport.

Different Types of Insurance Policy

The "travel" insurance: allows the insured to have coverage as needed and applies to a single trip.

The market insurance "to be topped up": is adapted to contracts which include deliveries and therefore staggered shipments. The insured clearly defines the risks covered and knows the amount to insure for and the staggering of the shipments.

The "subscription" insurance: also called the "floater insurance" covers shipments of the insured in their entirety in a given year. This solution is very often used by big companies, which insure all their imports and exports by one insurer. These insurance policies cover the entire company flow without declaration and exceptions in order to provide maximum security. The subscription calculation is based on the revenue.

The shipper needs to know two things:

• The maximum quantity limit authorized to be shipped by mode of transport.
• The grace period which allows for the exclusion of damage that is lower than a certain amount, fixed in advance, thus making it possible to adjust the insurance. This is advantageous to both parties, the insurer, who doesn't have to manage claims of insignificant amounts, and the insured who can thus reduce his premium (all companies are able to absorb small damage between Euro 100 to Euro 500).

In case of damage

There are in fact two possibilities:

• the damage is visible;
• the damage is not visible.

When the damage is visible

The receiver should:

1. write down the specific description* of the damage to the goods on the delivery slip;
2. allow the driver to write down his observations of the damage if he wishes;
3. open the damaged packages immediately;
4. if the goods are intact, accept the package;
5. if the goods are damaged, confirm the damage by registered letter addressed to the carrier who delivered the goods**;
6. send a copy to his insurance broker, insurance agent or shipping agent (the one who insured them);
7. stop further handling of the package;
8. put the package(s) away so as to avoid worsening the damage;
9. respond to the queries of the broker, insurance agent or shipping agents in charge of the insurance file.

Important:
* Stamped on reservations such as "subject to unpacking", " subject to inspection", etc. ARE NOT VALID. A reservation claim has the number of the damaged package(s), the type of damage in as precise terms as possible: package wet, fork impact on the side, package squashed...

When the damage is not visible

If nothing can be seen, reservation claims cannot be made and if the package is not immediately opened, there is little chance of getting anything.