Transit Insurance, Cargo Insurance, and the Risk of Loss or Damage in Transit

Transit insurance covers the total or partial loss to a seller's goods in transit from one location to another, assuming the loss was caused by an insured peril.  Transit insurance (a.k.a. cargo insurance) covers all risks of loss or damage to qualified goods that are properly packaged resulting from external causes, subject to certain exclusions and policy limitations.  Transit insurance policies often specify the means of transport coverage that the policy covers.  For example, goods shipped solely by sea are not likely to be covered by a standard transit insurance policy, but would be covered by a marine insurance policy.  Credit managers should be aware that transit or cargo insurance policies generally exclude coverage for:

• Loss or damage resulting from war, civil unrest, confiscation, or expropriation.
• Loss or damage resulting from fraud or misconduct of or by the insured.
• Loss caused by a reduction in value of the product in transit caused by market conditions, such as the change in value of the goods while in transit or by fluctuations in the value of foreign currency.
• Loss or damage caused by dampness, heat or cold, insect, or vermin.
• Loss cause by inherent vice. Inherent vice is damage to goods that will occur during any normal transit which arises solely because of the nature of the goods being shipped. (Inherent vice can be thought of as loss or damage resulting from an internal rather than an external cause.)
• Loss or damage caused from shipping delays, or loss of market.
• Loss or damage caused from inadequate packing or improper preparation for shipment.
• A loss that results when a shipment is released without obtaining a signature.
• A loss resulting from strike, riot or civil commotion.
• Insolvency or financial default of the carrier

Credit professionals should have a working knowledge of transit insurance because many disputes and deductions arise as a result of alleged loss or damage of goods in transit. Some important terms include:

• Cargo insurance: A general term for a marine insurance policy that covers goods being transported by ship, truck, railroad, or airplane.
• Domestic goods in transit: This involves domestic shipments exposed to loss while in transit by rail, motor truck, aircraft, or while in the custody of the U.S. Postal Service
• Inland marine: This covers domestic transportation of goods over land via land conveyances and/or air shipments. Inland marine coverage normally includes any goods in transit anywhere except on the high seas.
• Marine insurance: This is a broad term including ocean and inland marine insurance. Marine insurance involves coverage against specified causes of loss or damage that might be encountered at sea.
• Ocean cargo insurance: This provides coverage for international ocean and/or air shipments on a warehouse to warehouse basis (including the land connecting conveyance transits)
• War risks insurance: This is a separate endorsement that offers protection against war perils (such as mines and torpedoes, or terrorist acts (etc.) while the cargo is at sea.
• Warehouse to warehouse coverage: is a clause that can be added to inland and ocean marine policies extending the policy to cover property in transit from the shipper's warehouse to the consignee's warehouse

Key Point. A transit insurance policy purchased by the seller covering all shipments generally will be far less expensive than purchasing insurance from or through the carrier on a shipment-by-shipment basis.

© 2011.  Michael C. Dennis.  All Rights Reserved.  Michael is the author of "Credit and Collection Handbook."