June 29, 2017
Exclusions in Marine Cargo Insurance
When offering and quoting marine cargo insurance, you begin with the basic information like commodity, value, and from/to destination. With this information, you can accurately provide a quote with the rate, terms, and conditions. Do you always meticulously go through and advised your client of all the details?
Transportation providers generally have specific terms and conditions for insuring specific commodities in their marine cargo policy. As a rule of thumb, the higher the risk, the more probable these specific terms will become applicable. This is similar to your own personal insurance like homeowners, renters, and auto. If you live in areas of the United States with a high risk of earthquakes and hurricanes, your coverage will be subject to specific deductibles and possible exclusions. Marine cargo insurance is no different in that a higher risk commodity will increase the chances of it being subjected to special insuring conditions.
Let’s examine a scenario. You have been asked to provide a quotation on an ocean shipment of wire. Certainly, the wire will be subject to moisture during the transit. What impact will this moisture have on the wire? Would this be at the forefront of your thoughts as you prepare to quote the insurance premium? If it is, then you are ahead of the curve! Moisture probably didn’t even come to mind as an element to consider while quoting. One solution to this probable issue would be that the shipper protects the wire from corrosion during transit with a solvent spray that can be removed upon arrival. You may not know these particular procedures, but you are aware of unprotected metal wire’s inherent nature to rust when subjected to moisture.
As you review your policy terms and conditions under Steel/Iron Products (structural steel, pipes, coils, sheets, beams, wires, etc.), you note an exclusion for “loss, damage, or expense as a result of Rust, Oxidation, and Discoloration.” This common exclusion is known as ROD. It may make sense that the manufacturer has protected the wire from these types of damages given that it is an expected trait of the good. This is not an assumption you can afford to make. When your client contacts you for a quotation on insurance, they are probably preparing a quotation for their client as well. Their top concern is “how much will the insurance cost?” However, if there is a loss relative to the total dollar amount of the claim, the premium will become an insignificant factor. The important consideration of any deductibles or exclusions may not even come to mind during this quoting process.
The insurance company is under no obligation to pay for a claim since the policy specifically excluded ROD. Do not be surprised if your client holds your company liable for all incurred loss because you did not advise them of these exclusions in your quotation. The loss can include cost of the goods, transportation costs, and possible legal fees between them and their customer for contractual issues regarding the shipment. You may also be liable for loss of their future business if they lose the client due to this shipment.
Your client is not in the insurance business and depend on you for your expertise. If there are special insuring conditions or exclusions to the coverage, you should include them in the written quote. As an extra precaution, you should add a note to your transmittal of the quote to bring these exclusions or special insurance conditions to their attention. This is especially necessary when insuring high risk items.
A client would be very upset to learn about exclusions to the coverage at the time of a loss. You wouldn’t want to lose a client because of such a simple oversight and it cost considerably more to acquire a new customer than to retain an existing one. So, take a few extra moments to review your policy clauses prior to preparing the quotation and always provide a written quote to your clients with any special terms and conditions.
Avalon’s proprietary software, Web Merlin™, can assist in avoiding these types of mishaps. You can utilize it to streamline your cargo insurance program. You can view your policy and rate information, calculate premiums, request special quotes, and much more. Contact your local Avalon representative if you have any policy or special quote questions.