Transcript Slide 1

Premier Provider of Innovative Insurance and Surety Solutions
The importance of Cargo Insurance
Are you covered properly?
ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO
“Avalon Risk Management is the
officially endorsed provider of
Cargo Insurance for the SCTC “
-Special Pricing for Members
-Avalon partnering with Great American to provide
reliable and comprehensive coverage
-All-Risk coverage
-Avalon has the authority to handle claims.
About Avalon
Seattle
Toronto Boston
San Francisco
Chicago
New York
Los Angeles
Atlanta
Charleston
Houston
Miami
• Mid-sized insurance broker owned by founding management.
• Eleven regional offices located in major North American ports.
• Transportation insurance specialists.
What you will learn
• History and Overview
• Need for Insurance
• General Average
• Basics: Different
coverage types
• Insuring shipments and
Avalon technology
• Claims
© Avalon Risk Management
History & Overview
• Traces of Cargo Insurance were found as early as 3000 B.C.
– Piracy was also a common event.
• By the 17th Century, London was the hub of Cargo Insurance.
– Edward Lloyd founded a coffee shop where underwriters and
traders discussed insurance transactions.
– Underwriters formed “Lloyd’s of London.”
© Avalon Risk Management
The need for cargo insurance
Why Insure?
• Rigors of shipping
– Loss, damage and theft
– General Average (ocean)
• Carriers’ liability
– Carriers only pay claims
when liable
– Liability is often limited
– Often have improper
insurance or insufficient
funds
• Usually in trucking or
warehousing
© Avalon Risk Management
Ocean shipments
Ocean Shipments
• In the United States, the Carriage of Goods by Sea Act (COGSA)
governs liability for ocean cargo.
– Limits recovery to $500 per package or customary freight unit
(CFU) when the carrier/NVOCC is negligent. What is a package?
• The smallest unit of packaging declared on the bill of lading. This could
be a whole container, a pallet, etc. Examples:
– One 40-foot container S.T.C. 1000 packages of almonds. If the carrier is
liable, liability is limited to the lesser of the cargo’s value or 1000 x $500.
– One 40-foot container S.T.C. 1000 packages of almonds. If the carrier is
liable, liability is limited to the lesser of the cargo’s value or 1 x $500
• In Canada, Hague-Visby applies.
– 666.67 SDR per package or 2 SDR per kilo, higher than COGSA.
• Rotterdam Rules signed in 2009 will be the new liability
convention. Needs to be ratified first.
© Avalon Risk Management
17 Hague-Visby Defenses
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Neglect of carrier in the navigation or in the management of the ship
Fire (unless by fault of the carrier)
Perils, dangers, and accidents of the sea
Act of God
Act of war
Act of public enemies
Arrest, restraint, or seizure
Quarantine restrictions
Act of omissions of the shipper or owner
Strikes, lockouts, or labor stoppage
Riots and civil commotions
Inherent defect, quality, or vice of the goods
Insufficiency of packing
Insufficiency or inadequacy of marks
Latent defects not discoverable by due diligence
Saving life or property at sea (general average)
Any other cause arising without the actual fault of the carrier
© Avalon Risk Management
General Average
General Average
• Ocean loss. A voluntary sacrifice to save cargo/vessel/life.
– Extraordinary expenses are incurred (i.e., jettison, fire).
• All cargo is seized. Amount of GA loss is determined.
– Must post security deposits to release cargo.
© Avalon Risk Management
How General Average Works
Vessel and freight value
$200 million
Saved cargo value
$50 million
Contributing value (total)
$250 million
• Assume $50 million in cargo was sacrificed.
• The loss represents 20%of the contributing value.
• Cargo owners must contribute 20% of their respective cargo
values, even if their cargo wasn’t damaged.
© Avalon Risk Management
General Average
• A guarantee must be posted to release the freight.
• If the cargo was insured, the insurance company provides the
guarantee.
• Without Cargo Insurance, cash must be posted.
• General Average claims can take years to resolve.
© Avalon Risk Management
Domestic shipments:
Air, Road, Rail, Warehouse
Domestic Shipments
• Domestic air, intrastate road carriers, and warehouse operators
often limit liability to $0.50 per pound or $50 per shipment.
– Based on bill of lading or warehouse receipt.
• Carmack Amendment applies to interstate carriers.
– Dictates full value unless opted out by bill of lading, tariff or contract.
• Some carriers may have inadequate or no liability insurance and
be unable to fund a loss out of pocket.
© Avalon Risk Management
Summary of Liability Limits
Statute
Mode
Customary Limit
Carriage of Goods by Sea Act (COGSA)
Ocean
$500 per Customary Freight Unit
Warsaw Convention (International)
Air
$9.07 per pound or $20 per kilo
Montreal Protocol (International)
Air
19 Special Drawing Rights (SDRs)
Domestic Air (based on AWB)
Air
$0.50 per lb. and/or $50 per shipment
Warehouse Operators (based on receipt)
Warehouse $0.50 per lb. and/or $50 per shipment
Local Carriers (based on bill of lading)
Intrastate
$0.50 per lb. and/or $50 per shipment
Carmack Amendment
Interstate
Full value, unless limited by
rate/contract
© Avalon Risk Management
Cargo Insurance Basics
• You can insure freight by:
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Vessel
Aircraft
Truck/Rail
Warehouse
© Avalon Risk Management
Cargo Insurance Basics
Coverage Type
What’s covered?
“All-Risk”
Everything but what’s excluded
Free of Particular Average (FPA)
Named perils only
With Average (WA)
Adds “heavy weather” peril to FPA
If your policy is with a London Company or a company following the standard London
format, your conditions will be governed by the London Institute Clauses (ICC) “A,” “B”
and “C,” which are similar to American terms “All-Risk,” “FPA” and “WA.”
Please refer to your cargo policy and our manual for a comparison.
© Avalon Risk Management
Cargo Insurance Basics
• “All-Risk” coverage
– “All risks” except exclusions
– Typical exclusions: (consult manual/policy)
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Improper packing
Abandonment of cargo
Rejection/delay by Customs
Inherent vice
© Avalon Risk Management
Insuring Shipments
Variations in Value
• Must insure 100% of value, freight, duty and 10% margin to fully
collect in the event of a claim.
– Failure to insure 100% of cargo can result in a co-insurance penalty.
Sample calculation:
Invoice value:
Freight charges:
Sum
+ 10 percent
Insured Value
+
+
$100,000
$ 20,000
$120,000
$ 12,000
$132,000
Duty:
$ 6,000
* can typically be insured for 1/3 of the marine rate
© Avalon Risk Management
Co-Insurance Penalty
• Sample co-insurance penalty calculation:
– Insured value:
$132,000
• As determined on previous slide
– Insured amount:
$ 52,800
• To save money, you insure the shipment for 40% of the value, or
$52,800)
– Claim amount:
$ 40,000
• Heavy weather caused damage to the goods
– Amount received:
$ 16,000
• Since the goods were only insured for 40% of the value, the client will
only receive 40% of the claim amount.
© Avalon Risk Management
Web Merlin™
• Avalon streamlines the cargo insurance process with Web Merlin,
an Internet-based certificate issuance program.
• Web Merlin verifies that:
– The commodity is approved
– The origin/destination countries are
approved
– The shipment’s value is within the
policy limits
– The marine rate and premium is
correct
– Insuring conditions are on certificate
© Avalon Risk Management
Web Merlin™
© Avalon Risk Management
Cargo insurance claims
© Avalon Risk Management
Actual claims
•
Typhoon Vicente created rough
waters and capsized this ship
carrying a shipment of walnuts
valued at $96,000 off the coast
of China.
– What is the carrier liable for?
• $0
• Carriers are not liable for
“Acts of God”
• If uninsured, you would
receive $0
• If insured, $FULL CLAIM PAID
© Avalon Risk Management
Actual claims
• A trucker picked up a shipment
of almonds at the shipper’s
warehouse to be transported to
be transported to a distribution
center. Total loss valued at
$68,000
• The driver caused an accident
on the freeway by colliding
with another truck.
• What would you do if the
shipment was uninsured?
– Local truckers limit liability to
$.50 per pound or as little as
$50 maximum per shipment.
– You would have to pay nearly
the full value out-of-pocket.
© Avalon Risk Management
Actual claims
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Two separate truck loads of walnuts a
week apart were stolen in Tehama
County valued at over $300K
Thief got a hold of the correct
purchase order from an online load
board and impersonated a real
trucking company.
3 times day in America cargo theft
occurs, in the state of California it
happens 2X as much as thee rest of
the country.
Because it was a theft , it is very
difficult to receive any compensation,
cargo insurance pays immediately.
© Avalon Risk Management
Actual claims
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Exports of pistachios valued at 100,000 from Los Angeles to China were
on this ship. Luckily, our client’s shipment was on the other end of this
ship and was safe and was not affected by the fire.
But, a General Average was declared. Would you know what to do?
– You didn’t purchase Cargo Insurance. Your shipment wasn’t
damaged, but you must post cash for its release.
– If the shipment was insured, the insurance company would handle
the General Average guarantee.
© Avalon Risk Management
Actual claims
-Pistachios contracted mold on it’s voyage to Germany
-Surveyor was hired to examine the cargo
-Claim was filed on behalf of my client
-Claim was paid in less than 30 days
© Avalon Risk Management
Timeframes to File Claims
Air shipments
Ocean Shipments
Domestic
Damage (Hidden/Concealed)
7 (Warsaw) or 14 (Montreal) days from delivery
Delay
14 (Warsaw) or 21 days (Montreal) from delivery
Non-delivery
120 days from date of issuance
Statute of Limitations
Suit filed within 2 years of arrival date
Visible Loss/Damage
Immediately
Non-visible Loss/Damage
3 days from discharge/delivery
Statute of Limitations
Per COGSA, suit filed within 1 year from date of delivery.
Hague-Visby /FIATA bill of lading limit suit to 9 months
Loss/Damage
Immediately or 7 days from delivery
Statute of Limitations
Varies by carrier per bill of lading, freight receipt or tariff.
On interstate trucking, the Carmack Amendment limits
action to 9 months after date of delivery. In Canada,
varies by province. Ontario: 2 years.
Loss/Damage
60 days after delivery of goods or 60 days after the
warehouse receipt holder is notified of the loss,
whichever is shorter
Statue of Limitations
9 months after delivery goods or 9 months after the
warehouse receipt holder is notified of the loss,
whichever is shorter
Loss/Damage/Negligence
Per time frames for ocean or air above on entries, 75
days from liquidation
Statute of Limitations
2 years from date of loss or damage
Loss/Damage
7 days from the completion of transit
Non-delivery/any other event
45 days from when the goods should’ve been delivered
Statute of Limitations
9 months
Warehouse
NCBFAA Terms &
Conditions of Service
CIFFA Trading Conditions
© Avalon Risk Management
Questions?
• Any questions?
© Avalon Risk Management
Premier Provider of Innovative Insurance and Surety Solutions
For more information
Kevin Ricciotti
310-258-2428 Direct line
[email protected]
ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO