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To know different transport insurance policies

Responsibilities of transporters | Insurance of Merchandise

Responsibilities of transporters

The transporters say that they are responsible for your goods entrusted to them. This is true but there are a number of reservations.

Principles of responsibility

The transporters are actually responsible for the goods entrusted to them by you ; nevertheless, this responsibility is very much under constraint and considerably limited. To the extent that the transporters are paid according to weight and volume of what they transport and not according to the value of these goods carried by them, it is normal that their responsibility is expressed in the same manner in order to remain proportionate to their remuneration.

On the other hand, this has, important consequences for the loader. In case of damages to the goods, the transporter has to pay compensation according to the limits indicated, which are often smaller than its real value.

The limits of real responsibilities expressed in S.D.R. (Special Drawing Rights of which the rate prevailed around 1.4197 Euros in December 2001), are as follows :

• Surface Transport - CMR Convention : 8.33 SDR per kilo, amounting to around 11.82 Euros per kilo.
• Air Transport - Warsaw Convention : 16.5837 SDR per kilo, amounting to around 23.54 Euros per kilo.
• Maritime Transport - Wisby and Hague Convention : 2 SDR per kilo (about 2.83 Euros) or 666.66 SDR per package (around 946 Euros), which is the more severe of the two limits applied.

It is on this basis that transporters compensate for the damages suffered by the goods transported.
For example, a box of spare parts between Antwerp and Warsaw (Weight 29 kg and value 9900 Euros) - Container burgled and arriving empty - Damage 9900 Euros - The receiver has registered substantial objections on the delivery slip - The transporter compensates according to his responsibility : 29 kg x 8.33 SDR x 1.4197 = 342.95 Euros .

The remaining damage, charged to the loader, will then amount to 9557 Euros. If this container had undertaken the same journey by air, the compensation paid by the airlines would have been as follows : 29 kg x 16.5837 SDR x 1.4197 = 682.77 Euros and the damage, charged to the loader, would amount to 9217.23 Euros.

Special case of exemption and release of responsibility

If the transporters are responsible for damages to the goods entrusted to them, it is important to know that, in certain cases, this responsibility can not be waived and that, on the contrary, the upper limit can be removed.

Exemption from responsibility

In order that the transporter compensates the loader in case of damage, it is necessary that his responsibility should be fixed. Since he is the custodian of the goods, one has to presume that he is responsible for delivering the same in the same condition in which they were entrusted to him. On the other hand, if the transporter can prove that his responsibility is not involved in the matter, he must then be exempted from paying any compensation. The transporter can take advantage of the exemption from his responsibility when the damage caused to the goods is resultant upon an event of the category of "force majeure".The notion of 'force majeure' is explained in voluminous legal commentary and is continuously evolving ; nevertheless, the definition that is normally accepted is ' an event possessing three characteristics, viz. UNFORSEEN, IRRESISTIBLE & EXTERNAL'. If these three criteria are put together, the transporter can be exempted from his responsibility and would not then pay any compensation in reparation of damage caused.These events of the character of "force majeure" are as follows :

• Irresistible earthquake (irresistible, unforeseen and external).
• Tornado in the month of August in France (irresistible, unforeseen and external).
• Armed theft (irresistible, unforeseen and external).

It is interesting to note that certain European judges refuse to consider that an armed theft in Italy on a highway parking area belonged to the category of "force majeure". Hence, if such an aggression is irresistible and external to the transport company, it is not unforeseen and to that extent the problem is of frequent occurrence on the Italian highways.

The case of force majeur is not recognised by law :

• Tempest in the month of October in the Gulf of Gascogne (foreseeable).
• Mutiny by sailors (not external to the custodian of merchandise).

Shifting of responsibility

On the other hand, certain serious lapses that could be committed by the transporter are going to go beyond his responsibility and he will not any more compensate the damage on the basis of limits of responsibility but compensate the totality of damage suffered by the loader or his proxies.

These cases are usually defined by a legal tribunal, but here are some examples of cases where the transporter has to compensate the entire damage :

• Transport of prototype of an Ariane reactor - Dashing against a bridge - Destruction of the reactor - Serious Lapse : the transporter must verify the height of charging and anticipate a limiting line in consequence.
• Shipping of hi-fi equipment - Sale of cargo by the transporter for own benefit - Serious Lapse : theft on behalf of the transporter or on behalf of his proxies.
• Road Accident - Merchandise destroyed - The driver was driving in a deeply drunken state - Serious Lapse.Once the serious lapse is proved, what is usually necessary is legal action, and then there remain the problems of creditworthiness of their transporter and his insufficiently insured status which can often prevent recovery of the amount for the damages.

While facing these embarrassments and difficulties in the relations between loaders and transport companies, there is a solution for securing the flow of merchandise and thus also core of the trading activity.

Insurance of Merchandise

While underwriting insurance cover for merchandise, you are going to transfer the risks of damage caused to the merchandise to the insurance company, which will compensate on your behalf, not in terms of the principle of responsibility but only on the basis of the damage caused to the merchandise. In case of damage to the merchandise, the insurance company will reimburse the entire damage and then will turn to the transporter for recovering the amount that the latter could owe as per his limits of responsibility. The insurance premium shall be based on the value of merchandise and shall be expressed in the form of the rate of insurance.

It is possible to increase the declared value of insurance given to the insurance company. Automatically, the compensation paid by the company in case of calamity shall also be increased contractually and proportionately. This allows one to receive the additional contractual compensation covering the indirect expenses not taken into account. In the case of boxes of spare parts travelling between Antwerp and Warsaw, the insurance company would have reimbursed the entire damage, amounting to 9,900 Euro and would tern to the transporter for recovering the compensation in its charge in terms of the limits of responsibility.

Three Principal types of Guarantees

" FPA " guarantee: it covers the major risks like castaway, ship drowning, running around, fire, fall of packages during the loading operation and common damage : however, it excludes the risks of wetting, theft, crushing. It is applied to maritime transport. Its parallel for land and air transport is the " Characterised Accidents " Guarantee, which covers the consequences arising from the major events summarily enumerated in the text of the insurance policy.

" ALL RISKS " guarantee : As its name indicates, this guarantee covers all the risks from store to store including the passage up to the ship and passage away from the ship. It can be applied to air transport, maritime and land transport operations. This is the guarantee required in the majority of cases.

" Risks of War and Mines " Guarantee : It is always covered separately from others and a separate tariff is also applied to it. Its average cost varies around 0.0275 % according to the degree of risk on the area borrowed for placing the merchandise. It covers the acts of sabotage, piracy, torpedo-hits etc. It is applied to air, maritime and land transport.

Different types of Insurance Policy

1/ " On sea voyage " or " optional policy " : it allows the loader to ensure item by item and is applied in the case of isolated shipping.

2/ " open cover " policy : this is a contract in which the insured party is committed, for the duration of the contract, to declare all the dispatches and the insurer is committed, for the duration of the contract, to insure automatically all the dispatches relating to the tariffs and conditions contained in the contract and even in the case of late communications, or forgetting by inadherence or involuntary negligence.

3/ " subscription " policy : It covers the totality of shipments of an exporter for a given year. This solution is quite often selected by big companies who take insurance to cover as many risks as possible by a single insurer to cover all the imports and exports. These policies can provide for a cover without declaring the totality of the flows of the company without exception in order to ensure maximum security. The quotation is then calculated on the basis of the figure of business turnover.

For " open cover insurance policies " and " subscription policies " :these two notions must be known to the loader :

• Full ship-load which determines the maximum value that one is authorised to ship by the mode of transport.
• The franchise which allows exclusion of accidents of value lower than a certain amount fixed in advance, thus allowing modification of insurance. This advantage is available to both the parties, namely, the insurer who does not have to manage the papers covering the ridiculously low amounts and the insured party which can thus bring down the amount of its insurance premium.