Cargo insurance: Institute Cargo Clauses A, B and C explained
Cargo insurance protects the value of goods in transit, because carrier liability is capped by international conventions and bill of lading terms and rarely covers the full value of a shipment. The market standard is the Institute Cargo Clauses (A), (B) and (C) of 2009: clause A works as all-risks cover, while B and C only cover listed events. Who has to buy the policy depends on the Incoterms rule in the contract.
By Hiram Trade Editorial Desk
- Published
5 min read
Why carrier liability is not enough
Sea, road and air carriers are liable for cargo under international conventions and their own conditions of carriage. Those regimes set compensation limits per package or per kilogram, list many defences that release the carrier, and impose short deadlines for notices and claims. For goods with a high value relative to their weight, the gap between the limit and the actual loss can be large.
The second reason is general average. When the master sacrifices part of the cargo or incurs extraordinary costs to save the vessel, every cargo owner contributes in proportion to the value of their goods, even if their own container is untouched. Without insurance, the consignee has to post security personally before the cargo is released. All three Institute Cargo Clauses cover general average and salvage charges (clause 2).
Clauses A, B and C: what they cover
The clauses are published by the Lloyd's Market Association and the International Underwriting Association of London. The current wording is dated 1 January 2009.
| Event | ICC (A) | ICC (B) | ICC (C) |
|---|---|---|---|
| Fire, explosion | yes | yes | yes |
| Vessel stranded, grounded, sunk or capsized | yes | yes | yes |
| Overturning or derailment of land conveyance | yes | yes | yes |
| Collision or contact with an external object other than water | yes | yes | yes |
| Discharge of cargo at a port of distress | yes | yes | yes |
| General average sacrifice, jettison | yes | yes | yes |
| Earthquake, volcanic eruption, lightning | yes | yes | no |
| Washing overboard | yes | yes | no |
| Entry of sea, lake or river water into hold or container | yes | yes | no |
| Total loss of a package dropped during loading or unloading | yes | yes | no |
| Other accidental loss, e.g. theft, handling damage | yes | no | no |
Clause A covers all risks of loss of or damage to the goods except the exclusions in clauses 4 to 7. Clauses B and C list closed sets of perils, and the burden of showing that a loss falls within one of them sits with the assured. B and C also exclude deliberate damage or destruction of the goods by the wrongful act of any person, which clause A does not exclude.
Exclusions common to all three
Even clause A does not cover everything. Every version excludes, among others:
- loss attributable to wilful misconduct of the assured,
- ordinary leakage, ordinary loss in weight or volume, and ordinary wear and tear,
- insufficient or unsuitable packing or preparation, where it was done by the assured or their employees or before cover attached; "packing" includes stowage in a container,
- inherent vice or nature of the goods,
- delay, even if caused by an insured risk,
- insolvency of the vessel owners or operators, where the assured knew or should have known of it at loading,
- war, capture, mines, and strikes, riots and terrorism; these are covered separately under the Institute War Clauses and Institute Strikes Clauses.
The packing exclusion matters in practice. If an exporter stuffs and secures its own container, poorly secured cargo can lead to a declined claim. Our article on export packaging and ISPM 15 covers preparing goods for ocean transport.
When cover starts and ends
The transit clause (clause 8) works warehouse to warehouse. Cover attaches when the goods are first moved in the warehouse for immediate loading, and ends at whichever comes first:
- completion of unloading at the final warehouse named in the policy,
- completion of unloading at another warehouse the assured chooses for storage or distribution,
- when the assured starts using a vehicle or container for storage,
- 60 days after completion of discharge from the ocean vessel at the final port.
The 60-day limit becomes relevant when goods sit in port for a long time, for example during a delayed customs clearance.
Who buys insurance under Incoterms 2020
Only two rules put an insurance obligation on the seller: CIF and CIP. Under all other rules insurance is up to whichever party carries the risk on that leg.
| Rule | Who insures | Minimum cover |
|---|---|---|
| CIF | seller, for the buyer's benefit | ICC (C) or similar |
| CIP | seller, for the buyer's benefit | ICC (A) or similar |
| EXW, FCA, FAS, FOB, CFR, CPT | no obligation; buyer carries main-carriage risk | buyer's choice |
| DAP, DPU, DDP | no obligation; seller carries risk to the place of delivery | seller's choice |
Under CIF and CIP the insured amount must be at least 110% of the contract price, in the contract currency. The parties may agree a different level of cover, but it has to be written into the contract. A buyer on CIF importing goods prone to theft or water damage should either negotiate clause A or buy its own additional cover. The transfer of risk under each rule is covered in Incoterms 2020 in practice.
When comparing offers quoted under different rules, add the insurance cost to every price that excludes it. On Hiram, quotes are compared by total landed cost with the Incoterms 2020 rule attached, which makes it easier to see which price includes a policy. The method is explained in comparing import quotes by landed cost.
Insurable interest
Only a party with an insurable interest in the goods at the time of loss can recover (clause 11). Under CIF and CIP the seller takes out the policy but the buyer benefits from it, so the policy or insurance certificate must be transferable to the buyer. Under a letter of credit the bank usually requires a certificate in a specified form, so the document must match the credit terms.
How to file a claim
Clause 16 requires the assured to minimise the loss and to preserve rights against carriers. In practice:
- At delivery, check the container and the seal. Note any discrepancy on the delivery receipt before signing it.
- Do not discard damaged goods or packaging; take photos and keep evidence.
- Notify the insurer or the claims agent named in the policy immediately; they will usually appoint a surveyor.
- Lodge a written claim with the carrier. Notice periods and time bars against carriers are short and depend on the mode and the transport document; check them in the bill of lading or consignment note terms.
- Collect documents: policy or certificate, commercial invoice, packing list, transport document, survey report and correspondence with the carrier.
Skipping step 4 can reduce your payout, because after paying the insurer steps into your rights against the carrier.
Single shipment or open cover
Companies shipping several loads a month usually use an open cover, declaring each shipment under an agreed procedure. A one-off import is better insured with a single-shipment policy. In both cases check whether the policy covers war and strikes risks, storage before and after transit, and conditions specific to the goods, such as temperature in a reefer container.
If you are looking for suppliers or buyers and want to compare offers with a clearly stated Incoterms rule from the start, browse the market on Hiram.
Sources
- Institute Cargo Clauses (A) 1/1/09, LMA/IUA (clause text published by If Insurance) (opens in a new tab)
- Institute Cargo Clauses (B) 1/1/09, LMA/IUA (clause text published by If Insurance) (opens in a new tab)
- ICC Academy: Incoterms 2020, CIP or CIF? (opens in a new tab)
- ICC: Incoterms 2020 (opens in a new tab)
This article is for information only and is not legal, tax or customs advice. Rules and rates change: check the current official sources or consult an adviser before you decide.