Ocean Sea Freight Marine Cargo Insurance and Risk Management 1 — Questions and Answers
Question 1: What does Institute Cargo Clauses (ICC) A (All Risk) primarily cover?
- Only theft and piracy losses
- Only damage caused by fire and sinking
- All physical loss or damage from any external cause except named exclusions (Correct answer)
- Only total loss of the shipment
Correct answer: All physical loss or damage from any external cause except named exclusions
ICC A is the broadest form of coverage, protecting against all physical loss or damage from any external cause except those explicitly excluded in the policy.
Question 2: What is 'general average' in maritime shipping?
- The average freight rate across all major shipping lanes
- A voluntary sacrifice or expenditure made to save the voyage, shared proportionally by all cargo interests and the shipowner (Correct answer)
- The total weight average of all cargo aboard a vessel
- A standard method for calculating marine insurance premiums
Correct answer: A voluntary sacrifice or expenditure made to save the voyage, shared proportionally by all cargo interests and the shipowner
General average requires all parties — cargo owners and the shipowner — to share proportionally in losses when a deliberate sacrifice is made to save the ship and remaining cargo from a common peril.
Question 3: Under the CIF Incoterm, who is responsible for obtaining marine cargo insurance?
- The buyer at destination
- The freight forwarder
- The seller at origin (Correct answer)
- The port authority
Correct answer: The seller at origin
Under CIF (Cost, Insurance, and Freight), the seller must arrange and pay for marine cargo insurance up to the named port of destination.
Question 4: What does 'Free of Particular Average' (FPA) mean in a marine insurance policy?
- The insurer covers all partial losses regardless of cause
- The insurer only pays for total losses and partial losses caused by specific major casualties such as stranding or sinking (Correct answer)
- The cargo owner bears no financial risk during transit
- Freight charges are excluded from any insurance claim
Correct answer: The insurer only pays for total losses and partial losses caused by specific major casualties such as stranding or sinking
FPA coverage limits the insurer's liability to total losses and partial losses resulting only from major casualties like stranding, sinking, burning, or collision.
Question 5: What is 'subrogation' in the context of marine cargo insurance?
- The transfer of cargo ownership from seller to buyer upon delivery
- The insurer's right to pursue a third party responsible for a loss after paying the insured's claim (Correct answer)
- A cargo loading method used for heavy freight
- The substitution of one vessel for another mid-voyage
Correct answer: The insurer's right to pursue a third party responsible for a loss after paying the insured's claim
Subrogation transfers to the insurer the right to recover the amount paid in a claim from the party legally responsible for causing the loss.
Question 6: What is the primary purpose of a marine survey conducted after cargo damage?
- To determine the optimal shipping route for future voyages
- To assess and document the extent and cause of loss or damage to support an insurance claim (Correct answer)
- To calculate the freight rate for the next shipment
- To verify cargo weight for customs clearance purposes
Correct answer: To assess and document the extent and cause of loss or damage to support an insurance claim
A marine survey is conducted to document the nature, extent, and cause of cargo damage, providing the evidence needed to process an insurance claim.
Question 7: What does the 'insurable interest' requirement mean in marine cargo insurance?
- The cargo must be worth more than $10,000 to qualify for coverage
- Only the vessel owner may take out cargo insurance
- The policyholder must have a financial stake in the cargo and stand to suffer a loss if it is damaged or lost (Correct answer)
- Insurance must be arranged before the cargo is loaded onto the vessel
Correct answer: The policyholder must have a financial stake in the cargo and stand to suffer a loss if it is damaged or lost
Insurable interest requires that the policyholder has a financial relationship with the cargo and would suffer a monetary loss if it were lost or damaged.
Ocean Sea Freight Marine Cargo Insurance and Risk Management 1
What does Institute Cargo Clauses (ICC) A (All Risk) primarily cover?