10.1 insurance documents

Chapter 10 Insurance & Other Documents
Learning target:
 1. What is insurance coverage?
 2. What are insurance documents and their
 3. What are other documents required in
special cases?
10.1 insurance documents
 In
international trade, the transportation of
goods from the seller to the buyer by air, by
land, or by sea is realized generally over a
long distance and has to go through the
procedures of loading, unloading, and storing.
During this process, it is quite possible that
the goods will encounter various kinds of
perils or risks and sometimes suffer losses. In
order to protect the goods against possible
losses of such perils, the buyer or seller
before the transportation of the goods must
usually take out insurance with an insurance
company on the goods.
 International
cargo transportation insurance
refers to the fact that the insured covers
insurance for the shipment with the insurer,
i.e., the insurance company before shipment.
Insurance for maritime shipping is the
paramount adopted in international trade.
 The insured pays insurance premium to the
insurance company on the basis of insurance
amount, insurance cover as well as insurance
premium rate, and obtains the insurance
policy. The insurer shall compensate the
insured for the losses of, and damage to the
goods, if any, during the transportation
within the scope of insurance cover.
The insured pays insurance premium to the
insurance company on the basis of insurance
amount, insurance cover as well as insurance
premium rate, and obtains the insurance policy.
The insurer shall compensate the insured for the
losses of, and damage to the goods, if any,
during the transportation within the scope of
insurance cover.
Perils refer to risks which occur at sea, or at the place
where the ocean and land, or the ocean and the inland
river, or the ocean and the lighter are connected. Perils
are mainly divided into two kinds, i.e., general perils of
the sea and extraneous risks.
General perils of the sea include natural calamities and
fortuitous accidents. Natural calamities are caused by the
forces resulting from the changes of natures, e.g., vile
weather, thunder, lightning, Tsunami, earthquake, flood,
etc.. Fortuitous accidents include accidents resulting from
unexpected causes, the carrying conveyance being
grounded, stranded, or in collision with floating ice or
other objects, as well as fire or explosion.
Extraneous risks include theft, fresh or rain
water damage, shortage, leakage, breakage,
sweating and heating, intermixture and
contamination, odor, hook damage, breakage
of packing, rusting, etc. Another extraneous
risk occurs due to political and social
agitation, such as wars, strikes, cargo
rejection and failure to deliver.
2)Ocean Losses and expenses sustained
 Ocean losses refer to the direct or indirect losses
of the insured subject matter during the voyage
owing to the perils of the sea. Losses can be
divided into two kinds: total losses and partial
losses. Total losses imply all goods insured are
lost or turn to no worth. Total losses include
actual total losses and constructive total losses.
 Actual
Total Loss: The insured subject matter
is totally and irretrievable lost;
 Constructive Total Loss It is estimated that
the actual total loss of cargo is inevitable or
the cost of salvage or recovery could have
exceeded that the value of the cargo.
 Partial loss implies some of the goods are lost
or the goods are damaged by still remain
some values. Partial loss includes general
average and particular average.
①General average refers to a certain special
sacrifice and extra expense intentionally
incurred for the general interests of the shipowner, the insurer, and the owners of the various
cargoes aboard the ship.
 For example, a ship may have run aground and
all efforts to refloat it have failed. In order to
save the ship from breaking up, the master may
decide to jettison part of the cargoes to lighten
the ship. This loss is borne by all the parties
concerned mentioned above in proportion.
The following conditions of general average must
be provided with:
 The carrying vessel must really run up against
the risk that threatens the safety of the ship and
the cargoes.
 The sacrifice of general average must be a
willing and intentional action.
 The sacrifice of general average and the expense
outlaid must be reasonable.
 The purpose of the sacrifice and expense
incurred is only restricted to the general safety
of the vessel and cargoes.
 Losses should be the direct result of the general
②Particular average: it means that a particular
cargo is damaged by any cause and the degree of
damage does not reach a total loss, i.e., only a
partial loss, which shall be borne by the owner
of this individual consignment or the insurer
10.1.2 Insurance Coverage
 The Insurance Coverage Includes Basic Insurance
and Additional Insurance.
 Basic risks:Basic insurance is also called main
insurance which may be underwritten
independently and taken as the basic insurance
by insurer. It is classified into three conditions,
i.e., Free From Particular Average (F.P.A.), with
Particular Average (W.A/W.P.A.) and All Risks.
Where the goods insured hereunder sustain loss
or damage, the People’s Insurance Company shall
undertake to indemnify there-for according to
the Insured Condition specified in the Policy and
the Provisions of the clauses.
①Free form particular average (F.P.A). F.P.A.
means that the insurer is free from being
claimed for any particular average losses. It only
provides coverage for the total loss and general
average. F.P.A. provides the least coverage.
 ②With particular average (W.P.A. or W.A.): it
provides coverage for the F.P.A. plus particular
 ③All risks: Aside from the risks covered under
the F.P.A. and W.A. conditions as above, this
insurance also covers all risks of losses or
damage to the insured goods whether partial or
total, arising from external causes in the course
of transit.
2) Additional risks are generated for the purpose
to cover risks from external elements. Additional
risks can not be covered independently; they
shall be underwritten depending on one kind of
the basic risks.
 General additional risks;
 Theft, Pilferage and Non-Delivery;
 Fresh Water and Rain Damage;
 Shortage;
 Intermixture and Contamination;
 Leakage;
Clash and Breakage;
Sweating and Heating;
Hook damage;
Loss or Damage Caused by Breakage of Packing;
②Special additional risks
Failure to delivery;
On deck risk;
Aflatoxin risk;
Survey in customs risk;
Survey at jetty risk;
Strike, riot and civil commotion(SRCC);
War risk;
Contingency insurance “cover seller’s interest only”
10.1.3 Definition, function and classification of
insurance document Insurance Document
An insurance document is a contract of indemnity between
the insurer and the insured stipulating the premium, the
amount insured, risks to be covered, and procedures to
establish a claim and other terms and conditions
applicable, thereby indemnifying or making compensation
to the latter by the former in the event that a covered loss
① a certificate of international freight transport insurance
② a certificate of indemnity or compensation claimed by
the insured.
 ⑴Insurance Policy. The insurance policy is a
formal written contract between the insurer
and the insured, with all terms and
conditions included in its front cover and
provisions of rights and responsibilities of
both parties in its reverse cover. The
insurance policy is the most widely used
insurance document.
⑵Open Policy. This type of policy is of great
importance for export business, it is a
convenient method for insuring the goods
where a number of consignments of similar
export goods are intended to be covered. An
open policy covers these shipments, as soon
as they are made, under the previous
arrangement between the insured and the
insurance company. The particulars of these
shipments should be supplied to the
insurance company later on in the form of
shipment advices to get insurance certificate.
Certificate. The insurance
certificate is the one mentioned above under
open policy and the insurance certificate
said in UCP600 and ISBP681. The insurance
certificate has the same legal validity as the
insurance policy.
 ⑷Insurance Declaration. The insurance
declaration is one of the insurance
documents under open policy, which is filled
in by the insured in printed form fixed for
submission to the insurer. The insurance
declaration particulars are similar with the
shipment advice in content.
 ⑶Insurance
⑸Cover Note. The cover note is an informal
insurance policy issued by the insurer before
shipment particulars are available to satisfy.
Until the shipment details are provided to
the insurance company, can the insured not
take formal insurance policy.
 Insurance
policy includes the contents as
the insured, marks, quantity, description
of goods, amount insured, total amount
insured, premium and rate, per
conveyance S.S., Slg.on or abt,
From…to….conditions, claim payable at,
insurance survey agent, place and date of
issue and authorized signature. Here
below are the contents of an insurance
policy for reference.
10.1.5 Essentials of Insurance Documents
 (1) Kind of insurance documents should be
regulated by L/C.
 (2) Insurance premium. The insurance premium
should be what L/C specifies. In case of no such
regulation in L/C, the generally accepted
premium should be 110% CIF value. The amount
in lowercase and capital words should be
unanimous. The amount insured often remains
an integer by omitting all decimals while adding
one digit to the whole amount regardless of
whatsoever the decimal is.
10.2 Other Documents
10.2.1 Inspection Certificate Definition
An inspection certificate is a document to certify the
goods traded to ensure conditions as quality and quantity.
The institution carrying out inspection can be either
official authorized or private.
The inspection certificate can be taken for the following
Firstly, a certificate for delivery of goods between the
importer and the exporter;
Secondly, a document in settlement;
Thirdly, a document for export declaration and import
clearance and reference for evaluating of certain
Lastly, a certificate of indemnity and compensation.
 Inspection certificates are various. The
following kinds are the most commonly used:
Inspection Certificate of Quality, Inspection
Certificate of Weight/ Quality, Veterinary
Inspection Certificate, Sanitary Inspection
Certificate/ Inspection Certificate of Health,
Disinfection Inspection Certificate,
Inspection Certificate of Fumigation,
Inspection Certificate for Raw Silk
Classification and Conditioned Weight,
Inspection Certificate of Analysis, Society
General de Surveillance S. A., BV Certificate
(Bureaus Verita).
This chapter discusses insurance documents and
other documents in international trade. In
particular, the insurance documents specify the
liabilities and risks for contracting parties and
thus constitute an important part in this concern.
In the process of international trade, once one
party buys the insurance, the insurance
documents will become one of the important
documents in international settlement. Similarly,
other documents could be applied accordingly in
case they are be adopted by each party. These
documents, although unnecessary, they should
hinder the trade process without being taken
Key Words
Free From Particular Average (F.P.A.)
 With particular average (W.P.A. or W.A.)
 General additional risks
 Special additional risks
 Actual Total Loss:
 constructive total losses
 insurance document
 insurance
 Open Policy
 insurance certificate.
 insurance declaration.
 cover note
 Certificate of Origin (C/O)
 inspection certificate