Ans. NEED FOR CARGO INSURANCE
Why should the goods be insured? There are two reasons for securing the insurance cover. The first reason concerns the legal dimension of limited liability of the carriers and other intermediaries: The second reason concerns commercial considerations. Let us discuss them.
Legal Dimension
When the goods are ill transit from the exporter to the importer, they are, at different stages. in the custody of different agencies and authorities including the clearing and forwarding agents, carriers, port and customs authorities, etc. If there is any loss or damage to the goods, while in their custody, the concerned intermediary may be held liable to pay damages to the cargo owners.
The nature and extent of liabilities of various intermediaries have been defined in the respective laws enacted by the government all over the world. According to these laws, the intermediaries cannot be liable for loss to the cargo, if it was caused by reasons or events beyond their control. For example, if the loss is due to natural disasters or war or strike, the intermediaries will not be liable to pay for the loss. Further, if the loss has occurred even after the concerned intermediary has exercised reasonable care in keeping the goods, it is legally exempted from the liability. In such situation, the cargo owners who suffer the loss cannot recover it from the intermediaries and they have no other option but to obtain appropriate insurance cover. The laws also state that where the carriers or other intermediaries are liable for loss or damage, the maximum amount of recover is limited to the sum stipulated in the respective laws.
Commercial Dimension
From the point of view of an exporter, a transaction is complete as soon as the importer either pays for the Bill of Exchange on its presentation or he undertakes to make payment at a future date by accepting the Bill. Sometimes even before the Bill of Exchange is presented to the importer, he gets to know about the loss of goods in transit and does not accept the Bill when presented. In such a situation, the exporter is compelled to bear the loss. Prudent exporters, when dealing with unknown customers on DP or DA payment terms, prefer to get cargo insured. Further, as a commercial practice, cargo insurance makes it possible for the exporter to get post-shipment finance from the negotiating bank because the insurance policy is one of the required documents under a c.i.f contract. If on the other hand, the contract is on f.o.b. terms with payment on DP or DA basis, the negotiation bank may advance money immediately after shipment (provided the shipping documents are in order and the bank is favoured with an appropriate insurance policy).
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