What Is Cargo Insurance (Marine Cargo Insurance)? Coverage Levels and How It Differs from Carrier Liability
Cargo insurance is a policy taken out by the owner of the goods that covers loss of or damage to the goods in transit up to the insured value (in practice usually the full value of the goods), without requiring any fault on the part of the carrier. It should be thought of not as a replacement for carrier liability insurance (e.g. CMR), but as coverage that complements its legal limits (e.g. 8.33 SDR/kg).
Cargo insurance (also called marine cargo insurance or goods-in-transit insurance) is a policy that covers the physical loss of or damage to goods during transit, independently of any fault on the part of the carrier and within the terms of the policy; it is taken out by the owner of the goods, that is, the exporter or importer. Although it is often confused with liability insurance such as CMR, which protects the carrier's legal liability, the two are not alternatives but complement each other. This guide explains what cargo insurance is, the ICC (A)/(B)/(C) coverage levels, how the insured value is determined, and how it connects to Incoterms 2020.
What Is Cargo Insurance?
Cargo insurance (also called marine cargo insurance or goods-in-transit insurance) is a policy that covers the physical loss of or damage to the transported goods during transit, independently of any fault on the part of the carrier and within the terms of the policy. In other words, the protection is directed at the goods themselves.
This insurance is taken out by the party that owns the goods: in international trade this is usually the exporter or the importer. Who takes it out is determined by the point at which the goods are at whose risk and by the delivery terms (Incoterms) between the parties.
The most distinctive aspect of cargo insurance is that payment is not tied to the carrier's fault. When a risk defined in the policy occurs, the loss suffered by the goods can be covered within the terms of the policy, independently of whether the carrier is legally liable. Coverage, however, does not mean it covers every situation unconditionally; every policy has exclusions, and the protection varies according to the policy terms.
Why Is It Necessary? Carrier Liability Is Limited
When damage or loss occurs during transit, the first thought that comes to mind is 'the carrier is liable anyway, so they will cover it.' However, the carrier's liability is limited in two respects. First, for the carrier to pay compensation it must, as a rule, be capable of being held liable; in cases such as force majeure, the sender's fault, or an inherent defect of the goods, the carrier may be relieved of liability.
Second, even if the carrier is liable, the compensation it will pay is limited by statutory caps. For example, in international road transport under CMR this cap is, as a rule, 8.33 SDR/kg (per kilogram of gross weight short). For goods with a high value per kilogram (such as electronics, machinery, or high-value products), this cap may not be enough to meet the real value of the goods.
This is exactly where cargo insurance comes in to close this gap: it secures the full value of the goods without requiring any fault on the part of the carrier. For this reason, carrier liability insurance and cargo insurance are not alternatives to each other but two different, complementary forms of coverage.
ICC (A)/(B)/(C) Coverage Levels and War/Strikes Additional Clauses
In cargo insurance policies, the scope of coverage is defined, in international practice, by standard sets of clauses known as the Institute Cargo Clauses (ICC); these are a widely used standard originating from the London insurers' association. There are three basic levels, and the order of coverage is ICC (A) > ICC (B) > ICC (C).
ICC (A) is the broadest coverage and works on an 'all risks' basis: it covers risks other than the exclusions listed in the policy. ICC (B) is a mid-level coverage and covers risks itemized in the policy; these typically include events such as fire/explosion, the vessel sinking, capsizing, colliding or running aground, jettison of cargo, and earthquake/lightning, as well as certain water-ingress damage such as the entry of sea, lake or river water into the cargo. ICC (C) is the narrowest coverage and covers only basic major-casualty events (such as fire/explosion; the vessel sinking, capsizing, running aground, or colliding).
An important point is that war and strikes/riot risks fall outside ICC (A), (B), and (C) coverage. If protection against these risks is wanted, they must be added to the policy through separate clauses (the war clause and the strikes clause). Which level and which additional clauses are appropriate varies according to the type of goods, the route, and the policy terms.
Insured Value (CIF + 10%) and General Average
In cargo insurance, the insured value — that is, the amount on which coverage is provided — is set according to a common practice in international trade: in practice it is usually calculated by adding 10% to the CIF value (Cost, Insurance and Freight) of the goods. This 10% represents the expected profit share / profit margin in addition to the cost and freight of the goods; in this way, in the event of damage, not only the cost of the goods but also the profit expected by the buyer is brought within the scope of coverage.
Another concept specific to transport, and to sea transport in particular, is general average. General average is the principle that a deliberate sacrifice made to save the vessel and cargo together at a moment of common peril at sea (for example, jettisoning part of the cargo) is shared jointly by all parties that were saved thanks to that sacrifice.
In such a case, even if your goods were not damaged, you may be asked for a 'general average contribution' because your goods were saved. Depending on the policy terms, cargo insurance may cover this general average contribution of the insured; this shows the aspect of the insurance that can cover not only direct damage but also such shared obligations specific to transport.
Its Connection to Incoterms 2020: CIF Minimum, CIP Maximum
Who is responsible for cargo insurance is often directly linked to the Incoterms delivery term in the sales contract. Within the Incoterms 2020 rules, there are only two rules that oblige the seller to take out insurance for the benefit of the buyer: CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid To).
The minimum coverage level required under these two rules is different. Under CIF, the minimum coverage the seller must take out is at the ICC (C) level; under CIP, the seller must take out at least ICC (A) level cover, which is also the broadest of the ICC covers. The parties may, if they wish, agree on broader coverage in the contract; these are starting points that define the minimum/maximum framework.
Under the other Incoterms rules (such as FOB, CFR, EXW, or DAP), there is no obligation to take out insurance; if one of the parties wishes, they take it out separately. A practical approach is for the party bearing the risk to also consider the insurance: clarifying from which point onward the goods are at whose risk largely also determines who should hold the insurance along that route.
Cargo Insurance at Forwardie
In road transport, beyond the scope of the CMR Convention, Forwardie acts as an intermediary, on request, for arranging extended cargo insurance; the scope of coverage is determined according to the policy terms. In this way, the difference between the statutory cap on carrier liability and the real value of the goods can be addressed with separate coverage.
Which coverage level (ICC A/B/C), which additional clauses, and which insured value are suitable for your cargo varies according to the value, weight, route, and risk of the goods. Making this assessment before transport reduces the risk of running into unexpected gaps in the event of damage or loss.
Cargo insurance contains exclusions in every policy and is not coverage that covers every situation unconditionally. For this reason, it is advisable to clarify the scope of coverage, the exclusions, and the insured value in advance, through the policy terms.
Cargo Insurance (goods) — Carrier Liability Insurance (e.g. CMR)
| Cargo Insurance (goods) | Carrier Liability Insurance (e.g. CMR) |
|---|
| What it protects | Protects the goods (the cargo) themselves; it can cover physical loss or damage suffered in transit within the terms of the policy. | Protects not the goods but the carrier's legal liability; it covers situations in which the carrier is obliged to pay compensation. |
| Who takes it out | The owner of the goods (the exporter or importer) takes it out to protect their own goods. | The carrier takes it out to secure its own liability under rules such as CMR. |
| Requirement of carrier fault | No carrier fault is required; when a risk defined in the policy occurs, it can respond whether or not the carrier is at fault. | The carrier must be capable of being held liable; where the carrier is relieved of liability, no payment may be made. |
| Compensation cap / full value | Structured up to the insured value, in practice usually so as to cover the full value of the goods; it is not tied to a statutory weight-based cap. | Limited by statutory caps; for example, under CMR the cap is, as a rule, 8.33 SDR/kg (per kilogram of gross weight short). |
| When it pays out | It pays out when a risk defined in the policy (damage, loss, etc.) occurs, within the terms of the policy. | It pays out in cases of loss of or damage to the goods, or delay, where the carrier can be held liable under the applicable rules. |
| A common misconception | The assumption 'the carrier has insurance, so my goods are safe' can be misleading; to secure the full value of the goods, this insurance is additionally required. | The existence of carrier liability insurance does not mean that the full value of the goods is insured; it only covers the carrier's limited liability. |
| Do they complement each other | Yes; it is complementary coverage that can meet the real value of the goods where the statutory cap on carrier liability is insufficient. | Yes; it does not replace cargo insurance, and when considered together with it the protection becomes complete. |
Step by step
- Determine the value of the goods and the insured value: First, clarify the amount to be insured. The common practice in international trade is to calculate the insured value by adding 10% to the CIF value of the goods; this 10% represents the expected profit share. To avoid being left underinsured in the event of damage, make sure the insured value covers the real value of the goods and this profit share.
- Clarify who holds the insurance according to your delivery term (Incoterms): Look at the Incoterms 2020 rule in your sales contract. Only under CIF and CIP does the seller have an obligation to take out insurance; under the other rules insurance is not mandatory. Determine from which point onward the goods are at whose risk, and confirm before transport whether the insurance is with you or with the other party on that route.
- Choose the appropriate ICC coverage level (A / B / C): Determine the coverage level according to the type of goods, their fragility, and the route risk. ICC (A) is the broadest ('all risks' basis), ICC (B) covers the risks itemized in the policy, and ICC (C) applies only to basic major-casualty events. Bear in mind that under CIP a minimum of ICC (A) is taken as the basis and under CIF a minimum of ICC (C); the detail of the coverage varies according to the policy terms.
- Assess your need for additional clauses such as war and strikes: War and strikes/riot risks fall outside ICC (A), (B), and (C) coverage. If these risks are relevant on your route, check whether the relevant additional clauses (the war clause, the strikes clause) have been added to the policy, and request them if necessary.
- Read the policy exclusions and the general average coverage: No policy covers every situation unconditionally; be sure to read the exclusions. For sea transport, confirm before transport whether the general average contribution is covered under the policy, along with the packaging and deductible conditions and which types of damage are left out.
- Learn the notification and documentation process for damage/loss in advance: Know from the outset how to act if damage or loss occurs: inspect the goods and packaging on delivery, document the damage with photographs and a report, and notify the carrier and the insurer in writing within the applicable time limit. Which coverage (cargo insurance and/or carrier liability insurance) will respond is determined by the nature of the damage and the policy terms.
Frequently Asked Questions
What is cargo insurance?
Cargo insurance (also called marine cargo insurance) is a policy that covers the physical loss of or damage to the transported goods during transit, independently of any fault on the part of the carrier and within the terms of the policy. It is taken out by the owner of the goods — the exporter or importer — and the protection is directed at the goods themselves.
What is the difference between cargo insurance and carrier liability insurance (e.g. CMR)?
Cargo insurance protects the goods themselves, up to the insured value (in practice usually the full value) and without requiring any fault on the part of the carrier. Carrier liability insurance, by contrast, protects not the goods but the carrier's legal liability; it is limited by statutory caps (for example, 8.33 SDR/kg under CMR) and requires that the carrier can be held liable. The two are not alternatives but complementary.
What is the difference between ICC (A), (B), and (C)?
The ICC (Institute Cargo Clauses) coverage levels are ranked by breadth of scope: ICC (A) > ICC (B) > ICC (C). ICC (A) is the broadest coverage and, on an 'all risks' basis, covers risks other than the policy exclusions. ICC (B) is mid-level and covers certain risks itemized in the policy. ICC (C) is the narrowest coverage and covers only basic major-casualty events such as fire/explosion and the vessel sinking/capsizing/running aground. The detail of the coverage varies according to the policy terms.
Are war and strikes risks included in cargo insurance?
No. War and strikes/riot risks fall outside ICC (A), (B), and (C) coverage. If protection against these risks is wanted, they must be added to the policy through separate clauses (the war clause and the strikes clause).
How is the insured value determined?
According to a common practice in international trade, the insured value is usually calculated by adding 10% to the CIF value of the goods. This 10% represents the expected profit share (profit margin) in addition to the cost and freight of the goods. The exact amount and premium conditions vary according to the policy; this guide does not provide a specific premium rate.
Under which Incoterms rules is insurance mandatory? What is general average?
In Incoterms 2020, only the CIF and CIP rules oblige the seller to take out insurance: under CIF the minimum coverage is ICC (C), and under CIP the maximum coverage is ICC (A). Under the other rules insurance is not mandatory; the party who wishes takes it out separately. General average, in turn, is the principle that a deliberate sacrifice made to save the vessel and cargo at a moment of common peril at sea is shared by all parties that were saved; depending on the policy terms, cargo insurance may cover the general average contribution of the insured.
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