FREE TRADE DIRECTORY OF PAKISTAN | duration of insurance clauses

DURATION OF INSURANCE CLAUSES

In the Warehouse to Warehouse Clause, the insurance coverage commences from the time the goods leave the warehouse or place of storage at the place named in the policy, continues during the ordinary course of transit and terminates either on delivery

to the consignee's or other final warehouse or place of storage at the destination named in the policy,
to any other warehouse or place of storage, whether prior to or at the destination named in the policy, which the assured elect to use either for storage other than in the ordinary course of transit or for allocation or distribution,
on the expiry of 60 days after completion of discharge overside from the overseas vessel at the final port of discharge (or the 30 days limit applies in the case of air freight),

whichever shall first occur.
In certain countries, the insurance company may have the marine extension clauses to override the main clauses, for example the Fifteen (15) Days Clause, in which the insurance coverage terminates on the expiry of 15 days after completion of discharge overside from the overseas vessel at the final port of discharge. Under the American Institute Clauses, the number of days of the expiry of insurance coverage after completion of discharge overside from the overseas vessel at the final port of discharge is 15 days (or 30 days if the destination to which the goods are insured is outside the limits of the port)

Insurance Premiums
The general guiding rate of the insurance premium is 1% of the amount insured. The premium rates may vary, for example, from 0.5% to 2.5% or more depending on factors such as:

Type of goods
The goods that are more susceptible to damage demand a higher premium. For example, glassware has a higher premium rate than the hammer.

The country and distance of destination
Countries with a history of higher risks of loss or damage or at a war zone require a higher premium.

The longer the distance of voyage, the greater is the risks of loss or damage, thus a higher premium rate.

Value of the goods
The higher the value of the goods, the higher the amount the insurer will compensate in the event of loss or damage, thus a higher premium rate. For example, the precious jewellery has a higher premium rate than costume jewellery.

Mode of transportation
Generally, ocean freight has a higher premium than land freight, and land freight has a higher premium than air freight. Air freight, in general, has better cargo security than ocean and land freight and it is faster to reach the destination by air, thus there is less exposure to the risks of loss or damage.

The type of risks covered
The more risks are covered, the higher the premium. In the Institute Cargo Clauses (A), (B) and (C), the Clauses (A) have the greatest extent of cover, followed by the Clauses (B), and then the Clauses (C). Any endorsement of the insurance clauses requires payment of an additional premium.

Container or break-bulk shipment
Containers provide better protection for the cargo. Therefore, container shipments have a lower premium than break-bulk shipments.

Type of packing
The better the goods are protected, the lower the premium. The risks of insufficient and unsuitable packing have been excluded in the new Institute Cargo Clauses.

Contingency Insurance
In the trade contract terms FOB and CFR, the insurable interest transfers from the exporter to the importer at the time the goods pass over the ship's rail. It is very important that the exporter provides the details of the shipment to the importer promptly, so that the insurance can be arranged on time.

In practice, it is not uncommon that the importer arranges for insurance after the vessel has left the port of origin in the FOB and CFR terms. While it is the responsibility of the importer to arrange the insurance, the exporter may suffer loss if the goods are damaged before the insurable interest is transferred. As such, the exporter may insure the goods from the warehouse to the loading on board the vessel to overcome the contingency, without letting the importer know.

If the goods are exported on the open account basis where no letter of credit (L/C) is involved, there is a risk that the importer may reject the shipment if the goods are damaged on arrival. Contingency insurance may minimize the exporter's loss in such a circumstance. It is possible for the exporter to insure the goods from warehouse to warehouse. However, if the importer insures the goods too and claims the damage, the exporter cannot file for claims as he/she no longer has the insurable interest, and the exporter may not be able to provide the supporting insurance claim documents used by the importer to substantiate losses.