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Cargo Insurance covers loss and/or damage of cargo while it is in transit between the points of origin and final destination. Goods may be transported by sea, air, or land.

Cargo Insurance is essential for businesses engaging in international trade, especially those shipping large quantities of goods by boat. Specific terms and benefits vary widely across the world and many Cargo Insurance Policies are custom tailored for specific shipments, but a few general principles apply to the entire industry.

Different Types of Cargo Insurance

Cargo policies can be separated into three types of coverage:

  • 'all-risk' policies
  • 'with average' policies
  • 'free from particular average' (FPA) policies

All-risk policies
All-risk policies offer the most protection, covering all losses attributable to external causes. Misconduct and fraud normally prevent recovery. Additionally, insurers can specify additional risks to be excluded from the coverage.

With average policies
With average policies provide that unless a stated percentage of the insured's cargo is lost due to injury, the insured is not entitled to coverage. An 'average' is just another word for a partial loss. In an effort to protect themselves from losses sustained due to the inherent susceptibility of the goods and/or the nature of shipping goods on vessels, insurers came up with the average. For example, when glassware or perishable goods are shipped, some will break and some will perish – but not due to a peril at sea. This average, or partial loss, is also called a 'trade loss'. If more than the assigned percentage is damaged, the inference is that a peril at sea caused the loss, rather than the cargo's inherent susceptibility to injury. The required percentage acts as a franchise, not as a deductible. If the loss is greater than the assigned percentage, the insured is compensated for the entire loss because it is inferred that the loss is due to a covered peril at sea.

FPA policies
In plain language, FPA coverage provides that an insured is not covered for a partial loss to its insured cargo unless this results from some enumerated event, occasion or peril. These policies provide less protection for cargo by covering partial losses only if certain perils or events occur. Some FPA policies require the loss to be a direct result of the enumerated cause, while some require only that an event occurs, followed by a subsequent injury. If cargo will be moved from one warehouse to another warehouse or other inland destination, it may be wise to ensure that the policy contains a 'warehouse-to-warehouse' clause, which insures the cargo while being transported, moved or loaded from, or onto, land. Depending on the carrier, this may also be called a 'shore clause'.

Institute Cargo Clause C covers loss or damage due to Fire and Explosion, Stranding, Sinking, Capsizing, Overturning of a Lorry or train, collision, discharge at a port of distress, total loss of vehicle, general average sacrifice and jettison.

Institute Cargo Clause B covers loss or damage as per Cargo Clause C plus Washing Overboard, Sea, Lake, River, Water damage and Total Loss of package during loading/unloading.

Institute Cargo Clause A covers loss or damage as per Cargo Clause B plus Rainwater damage, malicious damage, breakage, partial loss, shortage, pilerage and theft.

Clause A. The most comprehensive type of Cargo Insurance is called All Risks Coverage. If you are shipping Household Goods, Personal Effects, or Vehicles, all risk insurance is only available if the container is professionally packed and loaded by a professional company (not the actual customer). Otherwise, the shipment is only insured for very a limited “WA coverage”.

Cargo Insurance Exclusions

Most Cargo Insurance Policies do not reimburse for losses caused by improper packing or when customs officials reject the delivered goods.

Other claims that are excluded from most Cargo Insurance Policies include:

  • Abandoned cargo
  • Other party failing to pay
  • Spoilage or other damages due to the product’s nature
  • Losses caused by shipping delays
  • Employee dishonesty
  • Damages at port cities more than 15 days after cargo was unloaded
For example, improperly packed rice can expand and spoil while in-transit. This would not be covered under standard Cargo Insurance Contracts.

Covered Risks under a Cargo Insurance Policy

All Risks Cargo Insurance would cover the non-delivery of an entire shipping package, including where theft was involved.

Covered Risks under a Cargo Insurance Policy

All Risks Cargo Insurance would cover the non-delivery of an entire shipping package, including where theft was involved.

Total loss of the entire shipment would also be covered if due to a collision, explosion or burning involving the ocean vessel.

Other eligible risks to cargo include:
  • Damages from bad weather
  • Seawater or freshwater flooding
  • Improper stowage by the shipping company
  • Mud and grease damage
  • Fumigation services
For proper insurance and depending on the goods transported and the client, there are many ways such as insurance:
  • A single contract covering (Floating Policy)
  • Open or permanent contract (Open Cover)
  • Insurance policy (Block Policy), etc.

CMR Insurance

The CMR insurance is a specific insurance cover that enables couriers and hauliers to carry cargo legally within European nations. The coverage ensures that the involved cargo carriers are in compliance with CMR convention. It must be noted here, that CMR insurance applies to delivery of cargo by the road-in-vehicles. According to EU law, the goods carriers would have to produce the CMR consignment proof at the customs & while unloading.

CMR would apply when:
  • The carriage of cargo would be by road & the cargo would be on the road wheels all through the period of transit
  • The carriage of goods would for reward or for hire
  • The transit would be between minimum two nations where one of them is a signatory of CMR convention
CMR insurance would not apply for:
  • Furniture removals
  • Funeral consignments
  • Personal goods
  • Sending post
  • Movements between the UK, The Isle of Man, Republic of Ireland & Channel Islands

You would need CMR insurance if you have to carry cargo within Europe. The insurance would be concluded within 1 month to 1 year. The very object of this special insurance policy is to address the liability of transporters involved in the transit of goods. Article 17 and Article 23 of the CMR convention have discussed about the liability of the transporter regarding the transport of merchandise and any issue here would be covered by the insurance policy.

According to Article 17, the insurance would apply if the transporter seems liable for partial or total loss/damage of goods in between the receipt & release of merchandise. It would also apply if you are accountable for delay in the delivery of goods. As per Article 23, your liability would include compensation for partial or total loss/damage of goods and the compensation would be calculated as per the cargo’s value at the very time & place of its receipt for transportation. The cargo’s value would be determined on grounds of Stock Exchange Course or based on current market price or usual value of similar goods, sharing similar types & quality. The compensation value would be within 8.33 accounts unit (D.S.T.)/kg of the gross weight that is missing. Lately, the limit here has shown to vary between 6,000 -8,000 pounds per tonne.

It’s a legal requirement to take to CMR insurance but the carriers & hauliers would also need it for their own good. Transport of cargo on the road wheels all through the period of transit is a complex process & does carry risks of damage or loss or theft of the goods. If you have to face any such unfortunate circumstance as a carrier, you have to bear the burden which could be a heavy blow in terms of monetary compensation. Besides, although the CMR convention relieves the carriers or hauliers from the liability of compensation in case there is a damage or loss of goods due to unavoidable circumstances yet it’s not always that easy to prove that the consequences were unavoidable for you. The topic has been under strong debate for years now and if you look at the reports, most of the times carriers upholding the said defence have failed to prove their point in court. The CMR insurance here will assure you the desired peace of mind by ensuring that you have the necessary backup to compensate for the possible mishaps on the way.

For any additional information please contact us.

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