The Top Insurance Terms: Shipping Industry
As a continuation of our basic insurance terms series, we are focusing on common jargon of the shipping insurance industry. Shipping insurance has a long list of terms specific to the industry, many of which aren’t self-explanatory. From the Carmack Amendment to Inherent Vice and everything in between, we have you covered.
Act of God: A natural event that is not caused and cannot be prevented by humans. No transporter can be held accountable for the event. Examples include a flood, storm, lightning, or earthquake.
Actual Cash Value: Also called market value, it determines what the insurer will pay in the event of a loss. It is equal to the replacement cost minus the depreciation at the time of loss.
All-Risk Cargo Insurance: All-Risk coverage insures merchandise against physical loss or damage from any external cause, subject to policy terms, conditions, and exclusions. This is the broadest, most comprehensive kind of coverage for cargo.
Bill of Lading: This document serves as the contract of carriage between the shipper and the transporter. A transporter of cargo will issue a bill of lading, which lists goods being shipped and specifies the terms of their transport. It provides evidence of the apparent condition of the cargo when received by the carrier, and any damage to the cargo identified by the transporter when the cargo is received will be noted in this document.
Carmack Amendment: This law governs interstate shipment when it comes to cargo loss. There are five exclusions under the amendment, which include an act of God, public enemy or act of war, act or default of shipper, public authority, and inherent vice.
Carrier: The transporter of goods. “Common carriers” transport goods for the public, while “contract carriers” transport goods under separate contracts.
Carrier Liability: Determines a carrier’s liability in the event of shipment damage, loss, and delays. The extent of this coverage depends on the commodity type or freight class of the shipped goods.
Certificate of Insurance: A document presented by the insurance company or insured as proof that insurance is in effect.
Co-Insurance: When insurance is divided between multiple parties, splitting or spreading the risks across them.
Commodity: Any raw material or product that is traded and often shipped in bulk. It becomes cargo once it is transported.
Concealed Damage: Goods that might have been damaged during transit but did not have their damage/loss/shortage noted on the POD or discovered until after delivery.
Conveyance: A means of transportation, often vessels, aircraft, barges, railcars, trucks, and owned vehicles.
Declaration of Insurance: The front portion of an insurance policy that contains key information about the insured. It provides the name of the insured, address, policy period, location of premises, policy limits, and other key elements.
INCOTERMS: International terms of sale that govern the costs, risks, and responsibilities between buyers and sellers. They define which party is responsible for each aspect during each stage of the delivery.
Inherent Vice: Loss caused by the goods themselves, instead of an external force causing the damage. Spontaneous combustion is an example of inherent vice.
Insurable Interest: This is the value of an entity or event that you wish to protect. An insurance policy mitigates the financial damage that would come if something happens to this entity or event. Entities not subject to financial loss from an event do not have an insurable interest and cannot purchase an insurance policy to cover that event.
Mechanical and Electrical Derangement: Explains when an appliance or device arrives but no longer operates due to something other than external damage.
Peril: A specific risk or cause of loss, such as an accident, covered by an insurance policy. If a peril is excluded, you will not have coverage for it.
Salvage: Describes when material, such as the ship or cargo, is saved from shipwrecks, collisions, or other perils of the sea.
Subrogation: The legal right of an insurance company to collect money from the party at fault to recover the losses paid to the insured client.
About Falvey Shippers Insurance & Falvey Insurance Group
After 25 years in business, Falvey Insurance Group has evolved into three divisions: Falvey Cargo Underwriting, Falvey Shippers Insurance and Safe Harbor Pollution Insurance becoming, “The Specialized Insurance Experts” in maritime coverage. Falvey Shippers provides full-value, all-risk domestic and international shipping insurance through an API integration within clients’ existing shipping software. Falvey Shippers’ comprehensive coverage, turnkey integration capabilities, claims handling and processing speed are unparalleled in the industry with the convenience of underwriting, technology and claims all handled in-house.