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Most shippers discover the gap between carrier liability and cargo insurance at the worst possible moment. The carrier is not your insurer, its liability is capped by statute and convention, and the cap is calculated in a way that has nothing to do with the value of your goods.
Carrier liability, and why it is not enough
On ocean shipments to and from the United States, the Carriage of Goods by Sea Act (COGSA, 46 U.S.C. 30701 note) sets the carrier's exposure. Section 4(5) caps liability at $500 per package, or per customary freight unit for goods not shipped in packages, unless the shipper declared the nature and value of the goods before shipment and the declaration appears in the bill of lading. Other regimes calculate the cap per package or per kilo, whichever produces the higher figure. In every case, a pallet of electronics worth tens of thousands of dollars recovers a small fraction of its invoice value unless a higher value was declared and paid for.
Carriers also hold defenses: perils of the sea, inherent vice of the goods, insufficient packing, and fire unless caused by the actual fault or privity of the carrier (COGSA section 4). The result is that a claim against a carrier is slow, contested and capped. A marine cargo policy pays on the value you insured, subject to its own terms.
The deadlines that protect a carrier claim
COGSA section 3(6) sets two clocks. Written notice of loss or damage goes to the carrier or its agent at the port of discharge before or at the time the goods are removed. Where the damage is not apparent, notice is due within three days of delivery. The carrier is discharged from all liability unless suit is brought within one year after delivery, or after the date the goods should have been delivered.
A marine cargo policy runs on its own notice conditions, so the carrier notice and the underwriter notice are two separate letters sent the same day.
What a marine cargo policy covers
The standard market wordings run from named perils to all risks. All risk cover, which is what most commercial shippers buy, responds to physical loss or damage from any external cause, subject to exclusions.
| Covered | Excluded |
|---|---|
| Physical loss or damage in transit | Inherent vice, ordinary leakage and wear |
| Jettison and washing overboard | Insufficient or unsuitable packing |
| General average contributions | Delay and consequential loss |
| Salvage charges | War and strikes, unless added back |
| Theft and non-delivery | Wilful misconduct by the insured |
Two exclusions deserve attention. Insufficient packing is judged against what the trade considers adequate for the voyage, so cutting packaging cost voids a claim. Delay is excluded even when caused by an insured peril, which means a missed season is your loss, not the underwriter's.
Named perils versus all risks
A named perils policy pays only when the loss was caused by a peril the wording lists, such as fire, stranding, sinking, collision or jettison. The insured carries the burden of proving that a listed peril caused the loss. An all risks policy reverses that position: the loss is covered unless the underwriter proves an exclusion applies.
The wording therefore decides who has to prove what after a loss. A shipper buying the cheapest quote on named perils buys a narrower contract, and the premium difference is the price of that narrower promise.
General average, the clause that surprises people
If a vessel suffers a casualty and the master takes action to save the voyage, the cost is shared proportionally by everyone with cargo aboard. Under general average your uninsured cargo is held until you post security, even if your specific containers were untouched. A cargo policy handles that contribution and the security. Without it, you pay before your goods are released.
How to value the policy
Standard practice is to insure at CIF value plus ten percent, and on project cargo the valuation deserves more care still. The uplift covers the incidental costs of a loss. Under-insuring triggers average clauses, where the insurer pays only the proportion insured. Over-insuring wastes premium and complicates a claim.
Customs value and insured value are different figures. Customs value on a US import is FOB based, as set out in how to calculate US import duty. Insurance runs on the landed value.
The CIF plus ten percent build-up has four lines: the goods invoice value, the ocean freight, the insurance premium itself, and the ten percent uplift on the sum. Write the resulting figure on the policy certificate and on the commercial invoice so the insured value can be matched to the shipment documents at claim time.
Worked example: carrier cap versus insured value
A buyer imports 20 cartons of electronics invoiced at $100,000, with $4,000 of ocean freight, on CIF terms. The container is lost overboard.
| Line | Amount |
|---|---|
| Invoice value plus freight | $104,000 |
| Insured value (plus ten percent) | $114,400 |
| Carrier liability under COGSA (20 packages at $500) | $10,000 |
| Gap with no cargo policy | $94,000 against the invoice, $104,400 against the insured value |
The carrier pays $10,000 only if the claim defeats its defenses and arrives inside the one-year suit window. The cargo policy pays the insured value on proof of loss. The figures are arithmetic on the COGSA cap, not a quotation.
Declaring a higher value with the carrier
COGSA section 4(5) lifts the $500 cap when the shipper declares the nature and value of the goods before shipment and the declaration is inserted in the bill of lading. The declaration is prima facie evidence of value, not conclusive evidence. The declaration changes the carrier's liability ceiling and nothing else: the carrier's defenses, the three-day notice rule and the one-year suit limit all stay in force. A declared value therefore substitutes for the cap only, and a cargo policy still covers the perils the carrier is not liable for.
Who buys the cover
The Incoterm decides. Under CIF and CIP the seller arranges insurance, though CIF requires only minimum cover, which is far narrower than most buyers assume. Under FOB, FCA and the other terms the buyer arranges it from the point risk transfers. If you are buying CIF and your supplier is insuring at the minimum, you are exposed for the difference.
The Incoterms guide for China to Caribbean imports shows where risk passes under each term. Risk transfer is the moment your own policy has to start, so the policy start date follows the Incoterm and not the sailing date.
Cargo that needs extra attention
- Reefer cargo: temperature deviation must be written into the cover; see reefer container shipping requirements.
- Dangerous goods: confirm that the policy accepts the IMDG class before booking; see dangerous goods in ocean freight.
- Deck cargo and project cargo: declare the stowage position, because the policy wording distinguishes on-deck from under-deck carriage.
- Consolidated cargo: the policy has to cover every handling point from the origin CFS to the destination CFS.
Practical claim discipline
Photograph the cargo loaded and sealed. Record the seal number on the bill of lading. Note damage on the delivery receipt before signing, because a clean receipt is very hard to argue with later. Notify the carrier and the underwriter in writing immediately, keep the packaging, and do not dispose of damaged goods before survey.
A claim file needs the policy or certificate, the bill of lading, the commercial invoice, the packing list, the annotated delivery receipt, the survey report and the written notices. A missing document stalls the claim at the underwriter.
For consolidated cargo the discipline matters more, because LCL shipments pass through two extra handling points where damage occurs without anyone noticing.
Checklist before booking
- Check the Incoterm on the purchase order and identify who buys the cover and from which point of risk transfer.
- Insure at CIF value plus ten percent and write the figure on the certificate.
- Choose all risks over named perils when the cargo is high value, so the underwriter carries the burden of proving an exclusion.
- Confirm that the packing meets the standard the trade considers adequate for the voyage, and keep photographs of it.
- Add war and strikes cover if the route requires it, because both are excluded unless added back.
- Keep the carrier notice and the underwriter notice letters ready, so both go out the day damage is found.
FAQ
Is cargo insurance required?
Not by law, but many trade terms and letters of credit require it, and the COGSA cap of $500 per package makes it a commercial necessity for any cargo worth more than that per package. Incoterms 2020 require the seller to insure only under CIF and CIP, with minimum cover of Institute Cargo Clauses (C) for CIF and Clauses (A) for CIP.
Does the carrier's liability cover my goods?
Only up to the package or weight limit, which is $500 per package under COGSA section 4(5) unless a higher value was declared in the bill of lading, and subject to the carrier's defenses. It is not equivalent to insurance. COGSA applies to ocean carriage to and from U.S. ports, and the limit is counted per package or customary freight unit.
What is all risk cover?
Cover against physical loss or damage from any external cause. The underwriter bears the burden of proving that an exclusion such as inherent vice, insufficient packing or delay applies. The Institute Cargo Clauses (A) are the all-risks form, and their standard exclusions include ordinary leakage and wear and tear, wilful misconduct, inherent vice, insufficient packing and delay.
How much does marine cargo insurance cost?
Premium is a percentage of the insured value, set by commodity, packing, route and claims history. The insured value is CIF plus ten percent, so the premium base is higher than the invoice. A shipment with a CIF value of 50,000 USD carries an insured value of 55,000 USD.
Am I covered while goods sit in a warehouse?
Standard transit clauses cover storage in the ordinary course of transit for a limited period. Extended storage needs a separate arrangement. Under the Institute Cargo Clauses, cover ends on delivery to the final warehouse or, if the goods are not delivered, 60 days after discharge at the final port.
How long do I have to file a claim against the carrier?
Notice is due when the goods are removed, or within three days of delivery for concealed damage. Suit must be filed within one year after delivery under COGSA section 3(6). Also notify the insurer promptly and keep the damaged goods and packaging for the surveyor, so the carrier claim and the insurance claim stay consistent.
Who pays general average if I have no policy?
The cargo owner. The carrier holds the cargo until security for the contribution is posted, and the cargo policy is the instrument that posts it. General average is governed by the York-Antwerp Rules, usually incorporated in the bill of lading, and the cargo owner normally posts a general average bond and guarantee before release.
Shipping high value cargo through the Caribbean or Latin America? Ask us how the cover should be structured before the container is booked.
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