There are numerous risks associated with shipping goods across oceans. From natural disasters to piracy, there is a lot at stake in losing or damaging cargo. That's where marine insurance comes in handy. Specifically, marine insurance under the Carriage of Goods by Sea Act (COGSA) provides cargo owners with the protection their cargo needs should anything happen to it.
In this blog, we’ll discuss marine insurance under COGSA, how it protects your cargo, and why it's an essential part of international shipping.
The Carriage of Goods by Sea Act (COGSA) is a 1936 U.S. law that defines the rights and obligations of cargo owners and carriers in international sea transport. COGSA defines how goods are to be handled and transported by sea and provides shippers with legal protection in case of loss or damage to cargo.
Under COGSA, carriers must make the ship seaworthy, operate the ship, equip the ship and supply the vessel, and load the cargo safely and securely. However, COGSA also caps carriers' liability at USD 500 per package or per customary freight unit, unless the shipper declares a higher value and pays an additional charge. This limitation of liability makes marine insurance under COGSA particularly important. While COGSA sets the legal framework for shipping, marine insurance ensures shippers are compensated in the event of a loss greater than the carrier's liability.
Under COGSA, marine insurance gives you more protection than what the Act's limited liability carriers do. It also keeps your cargo safe in these ways:
a) Full value coverage (FFC)
The carrier is only responsible for up to USD 500 per package, according to COGSA. However, marine insurance will cover the total value of your cargo. This means you can regain the total value of your goods, not just the amount set by COGSA, if you lose.
b) Coverage for a wide range of risks
Marine insurance protects against all kinds of risks that COGSA does not. This covers accidents, natural disasters, theft, and fixing damage. When you have marine insurance, you protect your goods against almost all of the risks of shipping by sea.
c) Protection against carrier insolvency
COGSA's limited liability might not be enough to make up for it if the carrier goes bankrupt or can't do its job in some other way. Marine insurance will protect you, if the carrier can't pay for the damage or loss.
d) Legal Support
If you make a claim, your marine insurance may even cover legal help to help you get fair compensation and understand international shipping law.
It is important to know about the different kinds of marine insurance under COGSA:
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a) Voyage policy:
This kind of policy only covers one shipment or trip. Businesses that only need to cover one trip and don't ship goods often can use it.
b) Time policy:
A time policy is in place for a certain amount, usually a year. This is good for businesses that ship goods by sea on a regular basis and need coverage all the time.
c) Open cover policy:
The insurance company and the insured sign a term contract called an "open cover policy." This policy covers all shipments made by the insured within a certain amount of time. This type of policy is flexible and easy to use for companies that ship a lot.
d) Cargo insurance:
The goal of cargo insurance is to protect the goods that are being shipped. It covers any cause of cargo loss or damage and can be tailored to cover specific cargo risks.
Knowing how to file a claim is important in case your cargo gets lost or damaged while in transit. Thus, what should you anticipate:
1) Document the damage/loss:
Immediately document any damage or loss that you find when you receive the cargo. Remember to take pictures and write down things you think are important for your claim.
2) Notify the insurance company:
Inform your insurance company right away about the loss or damage. Most policies need to be followed right away, so act quickly.
a) Submit a Claim:
Prepare a claim form and send it with supporting documents like a commercial invoice, a bill of lading, and any proof of damage or loss. The paperwork you need will be taken care of by your insurance company.
b) Assessments:
The insurer will assess the case, and that might include an inspection of the damaged goods. This helps make certain the claim is genuine, and the loss or damage is covered by your policy.
c) Settlements:
After the claim is approved, the insurer pays you for the loss or damage up to the amount permitted by your policy. The settlement may be for the total amount of the goods minus any deductibles.
Marine insurance under COGSA is an essential tool for anyone involved in sea transport of goods. While COGSA provides a legal framework that protects shippers to a certain extent, carrier liability limits necessitate additional coverage through marine insurance. This particular insurance pays for the entire value of your cargo and also protects you from all the dangers of maritime transportation.
By buying marine insurance, you protect your business from possible financial losses by keeping your cargo safe from the moment it leaves the port to reach its destination safely. Whether you're shipping electronics of all kinds, perishable goods or bulk commodities, marine insurance under COGSA protects you from the sea.
1) How does COGSA affect marine insurance obligations in the event of cargo misdelivery?
COGSA defines specific rules for the delivery of goods and the carrier's liability for misdelivery. These rules must be considered by marine insurance providers when determining coverage because misdelivery can cause disputes between shippers, carriers and insurers. Understanding the specifics of COGSA can help in developing policies that adequately protect against such risks.
2) Will COGSA's limitations on carrier liability affect the amount of coverage in a marine insurance policy?
Yes, COGSA limits the carrier's liability to USD 500 per package or per customary freight unit. This limit directly affects the amount of coverage in marine insurance policies, as shippers may need additional insurance to cover the gap between COGSA's limitations and the actual value of their goods.
3) How does COGSA affect the documentation requirements for marine insurance claims?
Proper documentation, such as the bill of lading is required under COGSA for marine insurance claims. The act requires specific details in shipping documents, and any discrepancies could affect claims. Marine insurers may require that these documents meet COGSA standards to settle a claim.
4) How does COGSA define the "perils of the sea" for marine insurance?
COGSA establishes a framework for defining ‘perils of the sea’, as defined in marine insurance policies. Understanding COGSA's definitions helps insurers and policyholders specify what risks are included and excluded from a marine insurance policy to provide full coverage for sea transport.