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  • Other important considerations

    Chapter 3 - Cotton marketing - Insurance in an uncertain world

     
     

    The importance of cover – claims

    It is the duty of the insured and whoever is acting on their behalf to:

    • Take all reasonable measures to avoid or minimize losses recoverable under the insurance, such as:
      • Cotton fire in storage or whilst in transit
      • Wet damage to bales in storage or transit
      • Rioters destroy bales in storage
      • Theft of cotton bales.
       
    • Ensure that all rights against third parties (warehouse staff, transporters, port authorities, etc.) are properly preserved and exercised.

    Available structures for your insurance cover

    Open cover


    This is the most flexible structure for cover, and for those with varying and ongoing requirements it can work out lower in cost per unit. If you have regular need for insurance, it is usual to seek a cargo insurance contract that is valid for a period of time – usually one year. Within the principal contract, all necessary stipulations are discussed and agreed once, and they apply for the entire period. This means that within its period of validity the cover is always available when needed, subject to the terms of the policy.

    Maximum exposure or limit of liability

    This cover means that you get back only what you have lost. Typically with open cover, the insurance contract will stipulate the limit of the underwriters’ liability to compensate the insured for a single occurrence. The amount of liability may vary depending on each stage of transport or storage. On a case-by-case basis (insurance per certificate), the amount stated in the insurance certificate is the limit of liability.

    Extent of insurance – all risks

    This cover is bought on an one-off or annual basis. If volumes covered are large enough, this may be the most cost effective option. In reality, however, the phrase ‘all risks’ certainly does not mean that all possible risks are covered. Normal storage and transport insurance principally covers only losses due to physical damage to goods that occurs by chance.

    ‘All risks’ normally covers all the physical risks stated within the policy. If an event is not stated it is probably not covered.

    Glossary of basic insurance definitions

    The scope of any insurance cover is determined by the wording of the policy document. Below are some terms frequently encountered.

    Broker.
    Licensed, authorized intermediary acting on behalf of the insured in arranging an insurance policy, any subsequent amendments and, where required, the negotiation and settlement of valid claims from the insurer.

    Condition.
    Stated clauses within the insurance policy which must be complied
    with by the insured and/or insurer.

    Excess. Pre-agreed monetary amount for which insurers have no liability in the event of a loss. This may also be known as a ‘deductible’ or ‘franchise’, which is a pre-determined uninsured percentage.

    Exclusions. Events defined within the insurance policy which are outside the scope of the policy.

    Indemnity or policy limit. The maximum amount for which underwriters agree to be liable to the insured for any number of agreed events of loss within the insurance policy.

    Insurable interest. The insured must own or have an interest in what is being insured. Once a business has paid or pre-paid for cotton or other goods this principle is established (provided that in the event of the loss of the goods the business can show a direct financial loss).

    Insured. Party with an insurable interest in the item at risk.

    Insurer. The licensed and authorized provider of a pre-agreed indemnity policy, being the contract of insurance.

    Loss adjuster. Specialist claims intermediary appointed by the insurer to assess the validity and quantum of any claim amount.

    Period of cover. Clear stipulation of the designated dates and times between which cover is provided or is effective; loss experienced outside that given timeframe is not covered.

    Premium. The agreed monetary sum payable by the insured to the insurer to validate the insurance policy.

    Warranty. A clause within an insurance policy which, if (in the opinion of the insurer) ignored or broken by the insured, may cause the insurance policy to be invalidated.

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