Insurance for import and export goods transported by sea

I - Characteristics and responsibilitis of related parties I the process of importing and exporting goods transported by sea:

1) Characteristics of the process of importing and exporting goods transported by sea

- The import and export of goods is usually done through a contract between the buyer and the seller with the following contents: quantity, quality, markings, packing specifications, goods prices, responsibility for chartering and paying freight, insurance fee, procedures and currency of payment...

- In the process of importing and exporting goods, there is a transfer of ownership of the imported and exported goods from the seller to the buyer.

- Import and export goods are often transported across national borders, subject to customs control, quarantine… depending on the regulations and practices of each country. At the same time, to transport out (or in) across the border must buy insurance according to international trade practices. The insured can be a buyer (importer) or a seller (exporter). The contract of insurance represents the relationship between the insurer and the insured for the insured goods. If the seller buys the insurance, he must transfer it back to the buyer, so that when the goods arrive in the country of import, if the goods are damaged, they can claim compensation from the insurer.
-Import and export goods are usually transported by different means of transport by mode of multi-modal transport, including ships. The person who transports the goods is also the person who delivers the goods to the buyer. Therefore, the carrier as an intermediary must be responsible for protecting and taking care the goods in accordance with the specifications, quality and quantity from the time of receipt from the seller to the time of delivery to the buyer.

The process of importing and exporting goods involves many parties, of which there are four main parties: the seller (the exporter), the buyer (the importer), the carrier and the insurer. Therefore, it is necessary to clearly define the responsibilities of the parties involved and when importing and exporting goods, the related parties must fulfill their obligations.

2) Responsibilites of the parties involved
The activities of importing and exporting goods are usually perfomed through three types of contracts: 

- Sale contract
- Transport contract
- Insurance contract

These three contracts are the legal basis to determine the responsibilities of the related parties and this responsibility depends on the delivery conditions of the sales contract. According to the international commercial terms “INCOTERMS 2000” (International Commercial Terms) there are thirteen delivery terms divided into four groups E, F, C, D with the following basic differences: The first is group E, which stipulates that the seller places the goods at the diposal of the buyer at the seller’s workshop (term E-delivered at the factory); The second is group F whereby the selleris required to deliver the goods to a carrier nominated by the buyer (term F: FCA, FAS and FOB); The third is group C, whereby the seller must contract for the hire of a means of transport, but bear no risk of loss or damage to the goods or additional costs arising from circumstances occurring after sending goods and loading goods on board (condition group C: CFR, CIF, CPT and CIP); The fourth is group D – where the seller must bear all costs and risks necessary to bring the goods to the named place (group of term D: DAF, DES, DEQ, DDU, DDP). The most common are FOB, CFR and CIF terms. 

In terms of delivery, in addition to the price of the goods, depending on the specific conditions, there are additional freight and insurance fees. There are trms of delivery where the seller is not responsible for chartering and insuring the goods. Thus, although the goods can be sold, the transportation and insurance services will be assumed by the uyer (FOB terms). There are cases of delivery under condition that in addition to exporting the goods, the seller is also responsible for chartering the ship and buying insurance for the goods (CIF terms). In fact, economic groups operate in many fields such as production, transportation, insurance, ect., when delivering goods according to terms of groups C and D, besides selling the goods, they also provide them with shipping and insurance service for that goods. Therefore, if you import goods under FOB terms, or CFR terms, you will keep the shipping and insurance services, or just the insurance services. If during the importation operation, the goods are sold at CIF prices, the seller also retains the transportation and insurance services. This will contribute to promoting the development of the shipping industry and the insurance industry of that country. 

In general, responsibilities of the involved parties are divided as follow: 

- Responsibilities of the seller (exporter): must prepare the goods in accordance with the contract in foreign trade in terms of quantity, quality, specifications, types, packaging, etc. and gather the goods to the port until the date of receipt, notify the ship to receive transport, deliver the goods to the ship until passing the safety rail so the responsibility for the risks and accidents to the good will end. In addition, the seller must do the customs procedures, quarantine, get the quality inspection certificate, packaging must withstand the usual conditions of transportation and handling. Finally, the seller must obtain a clean bill of lading. If selling goods under CIF terms, the seller is also responsible for buying insurance for the goods and thnen signing an endorsement on the insurance policy to transfer insurance benefits to the buyer.

-Responsibilities of the buyer (importer): receive the goods from the carrier according to the correct quantity and quality… stated in the contract of carriage and foreign trade contract, obtain a certificate of tally, the record of delivery and receipt of goods with the ship owner, the record of damaged goods caused by the ship (if any), if there is a discrepancy in the quantity of imported goods, which is different from the sales contract but in accordance with the contract of carriage, the buyer reserves the right to complain against the seller. If the quality and quantity of goods received are different from the bill of lading, the buyer, based on the above record, reserves the right to complain the owner of the means of transport. In addition, the buyer is also responsible for purchasing insurance for the goods if the goods are purchased at the CF price, and buy insurance , charter ship and pay freight if buying goods at FOB price or get back insurance documents tranfered by the seller if buying goods at CIF price.

- Responsibilities of the carrier: prepare means of transport according to commercikal and maritime technical requirements, receive and deliver goods in accordance with the contract of carriage. According to international commercikal practice, cargo ships are required to participate in hull insurance and P and I. The carrier is also responsible for issuing the bill of lading to the consignor. Bill of Lading is a maritime tracsport document at sea issued by the carrier to the consignor to express the legal relationaship between the carrier, the consignor and the consignee. There are many types of bills of lading, but we just mention here two basic types: the perfect bill of lading (Clean B/L) and the imperfect bill of lading (Unclean B/L). the carrier must be responsible for the risks that occur to the goods in accordance with the regulations and must be responsible for protecting and taking care of the transported goods during the journey from the port of departure to the port of destination.

- Responsibilities of the insurer: responsible for the insured perils caused to the insured cargo, the insurer is also responsible for checking the documents related to the goods, the transportation journey and the carrier itself. When a loss falls within the scope of the insurance’s liability, the insurer is responsible for inspecting, indemnifying the loss and claiming a third party if they caused this loss.

II - Types of risks and losses in the insurance of import and export goods transported by sea:

1) Risks in the insurance of import and export goods transportedby sea

Risks in the insurance of import and export goods transported by sea are accidents, disasters, incidents that occur suddenly, randomly or dangerous threats, which, when occurring, will cause loss to te subject matter insured, for example: shipwreck, lost goods, broken goods, damaged ...  There are may types of risks in import and export of goods transported by sea, based on their origin, they can be classified into the following types:

* Natural disasters: Natural disasters are natural phenomena that humans cannot control such as: rough seas, storms, whirlwinds, lightning strikes, bad weather, tsunamis...
* Disasters of the sea: are the disasters that happen to the ship at sea such as: the ship is stranded, crashed, sunk, explosion, capsized, missing...These risks are called the main risks.
* Other unexpected accidents: are damages caused by random external impacts that are not part of the above mentioned marine disasters. Other unexpected accidents may occur at sea, but the cause is not a disaster of the sea. They may occur on land or in the air during transportation, loading and unloading of goods, delivery, storage, maintenance such as: broken, sliced, steamed, missing, stolen, not delivered ... These risks are called secondary risks.
* Risks of the nature or special nature of the subject-matter insured or losses which direct cause is the delay.

According to the insurance business, the risks of import and export goods transported by sea can be divided into the following categories:
* Normal insured risks: risks that are normally insured under the original insurance conditions. These are random and unexpected risks that occur against the will of the insured such as: natural disasters, sea calamities, other unexpected accidents that is, including main risks and secondary risks.
* Separate insurance risks: are risks that if you want to be insured, you must agree separately, additionally. They are not compensated according to the original insurance conditions. This type of risk includes: risks of war, strike, terrorism which are insured under special conditions.
* Uninsured risks: are risks that are not insured by the insurer or indemnified by the insurer under any circumstances. These are natural and certain risks or damages due to internal defects, the nature of the goods, the fault of the insured, damage directly caused by delay, risk of a catastrophic nature whose scale, magnitude and consequences are unpredictable.
In short, the insured risks must be the direct cause of the loss. The division of direct causes or indirect causes is very important to determine whther the risk of loss is an insured risk or not. Only losses which are directly caused by the insured risks will be compensated.

2) Loss in insurance of import and export goods transported by sea:

Loss in import and export goods insurance is the damage to the insured goods caused by risks.

Based on the size and extent of loss, there are two types of loss: partial loss and total loss.

* Partial loss: is a loss where part of the subject matter insured under an insurance policy is lost, damaged or destroyed. Partial loss can be loss in quantity, weight, volume or value.
* Total loss: means the entire subject matter insured under the insurance contract is lost, damaged, or metamorphosed, deformed, no longer as it was at the time of insurance. A total loss may be an actual total loss or an estimated total loss:
- Actual total loss is the fact that the entire subject matter insured is lost, totally damaged or destroyed, and cannot be recovered as it was at the time of insurance. In this case, the insurer must indemnify the entire insured value or sum insured.
- Estimated total loss means loss or damaged of the subject-matter insured which is less than total loss but the subject-matter insured is reasonably abandoned because actual total loss is considered unavoidable or expenses for the prevention or recovery of loss or damaged is greater than the value of the goods insured. When the subject matter which are the goods is abandoned, the ownership of the goods passes to the insurer and the insurer has the right to make the decision on the goods. At that time, the insured has the right to claim for total loss.

Based on the nature of the loss and insurance liability, the loss is divided into two types:

* General loss means special sacrifices or expenses made intentionally and reasonably for the purpose of saving the ship and its cargo form a common, real danger to them. When a general loss occurs, the shipper and the insurer must fill in the Affidavit, the Declaration of Contribution to General loss. These documents are presented to the shipper or the captain upon receipt of the goods. In general, when a general loss occurs, the insured must notify the insurance company so that the company guides the procedures, not to arbitrarily sign the Affidavit.

* Separate loss: is a loss that causes damage only to one or several interests of the shippers and in shipowners on a ship. Thus, a separate loss relates only to a separate interest. In separate loss, in addition to physical damage, there are also related costs to limit the damage when the loss occurs called separate loss costs. Separate loss costs are the costs of preserving goods to reduce damage or prevent further damage, including costs of loading, unloading, shipping, repacking, replacing, packaging, etc. at the port of departure and along the road. Separate loss costs limit and reduce separate loss, which can be a partial loss or a total loss. Whether a separate loss is indemnified by the insurer depends on whether the risk is agreed in the insurance contract, not like the general loss.

Source : VOER (Vietnam Open Educational Resources)