Cargo insurance

A cargo ship en route from Shanghai to Los Angeles encounters engine trouble and requires towing. The costs are declared under General Average. How are the contributions to cover these costs determined?

• Based on the cargo value only.

• Proportionally by the shipowner alone.

• Proportionally based on the saved cargo and ship values.

• Evenly divided among all cargo owners.

Answer explanation

The contributions to cover General Average costs, such as towing in this case, are calculated proportionally based on the value of the saved cargo and parts of the ship. Each party involved contributes according to the value of their interest that was saved, ensuring a fair distribution of costs.

If cargo is jettisoned during a severe storm to save the ship and remaining cargo, and a General Average is declared, which party typically settles the contributions directly with the General Average adjuster on behalf of the cargo owners?

• The ship captain.

• The cargo handlers.

• The insurance companies.

• The shipowner.

Answer explanation

Insurance companies usually handle the settlement of contributions to the General Average fund on behalf of the cargo owners. They assess the coverage terms of the policy and directly settle the calculated contributions with the General Average adjuster, simplifying the process for the cargo owners.

A vessel transporting a mixed cargo from Rotterdam to Cape Town faces a severe fire on board. To control the fire, the crew decides to flood a section of the cargo hold, damaging some cargo but saving the vessel. A General Average (GA) is declared. How is the financial responsibility for the damaged cargo determined?

• Solely by the value of the damaged cargo.

• Proportionally, based on the value of saved ship and cargo.

• Equally divided among all cargo owners.

• Only by those whose cargo was damaged.

Answer explanation

When a General Average is declared, financial responsibility for sacrifices made to save the vessel, such as deliberately flooding a cargo hold to extinguish a fire, is distributed proportionally based on the value of the cargo and parts of the ship that were saved. This ensures that all parties benefiting from the sacrifice share in the financial burden.

On a voyage from Singapore to Sydney, heavy seas prompt the captain to jettison some cargo to stabilize the ship. After the peril is avoided and a General Average is declared, what initial documentation might the General Average adjuster require from the shipowner and cargo owners to proceed with assessments?

• Cargo sales receipts.

• Detailed manifest and value assessments of saved cargo.

• Future shipping contracts.

• Personal identification of all crew members.

Answer explanation

To assess and calculate the contributions required under General Average, the adjuster will first need a detailed manifest and the value assessments of the cargo and parts of the ship that were saved. This information is crucial to determine how much each party should contribute relative to the value they had saved during the incident.

Following a GA declaration due to necessary engine repairs during a transatlantic crossing, which party is responsible for proving that the repairs were essential to the safety of the voyage and thus justifiable under General Average?

• The cargo owners.

• The shipowner or captain.

• The port authorities.

• The insurance adjuster.

Answer explanation

The shipowner or captain is responsible for providing justification for claiming General Average, which in this case involves demonstrating that the engine repairs were essential for the safety of the voyage and therefore a necessary sacrifice. This proof is crucial to ensure that the costs are accepted as part of the General Average and properly distributed among all stakeholders.

During a voyage from Hamburg to New York, a cargo ship encounters a severe leak requiring the crew to use additional fuel to reach a nearby port for emergency repairs, resulting in a General Average declaration. What steps follow this declaration to ensure equitable cost sharing among all stakeholders?

• Immediate cost sharing by all cargo owners.

• Appointment of a General Average Adjuster to calculate contributions.

• Direct billing of all parties by the shipowner.

• An insurance claim filed by each cargo owner independent

Answer explanation

Following a General Average declaration, the first step is the appointment of a General Average Adjuster. This adjuster assesses the situation, evaluates the value of the sacrificed and saved properties, and accurately distributes the financial responsibilities among all parties involved, ensuring fairness and equity in the distribution of losses.

If cargo is voluntarily sacrificed during an emergency to save the vessel and remaining cargo, and a subsequent General Average is declared, under what circumstance might a cargo owner challenge their responsibility to contribute to the GA fund?

• If the cargo was undervalued by the adjuster.

• If the sacrifice was unnecessary or avoidable.

• If the ship was near port.

• If other cargo owners do not agree to the terms.

Answer explanation

A cargo owner might challenge their responsibility to contribute to the General Average fund if they believe that the sacrifice of their cargo was unnecessary or avoidable. If it can be demonstrated that the emergency action (such as jettisoning cargo) was not essential to save the vessel and remaining cargo, then the basis for the General Average declaration may be called into question, potentially exempting them from having to contribute.

A company regularly ships electronics from Seoul to various global destinations and is considering their insurance options. Why might they choose an Open Policy over a Specific (Voyage) Policy for their shipments?

• For continuous coverage over multiple shipments.

• Lower premiums for each individual voyage.

• Coverage only for specified voyages.

• To avoid long-term commitment with an insurer.

Answer explanation

An Open Policy would be advantageous for a company that frequently ships goods because it provides continuous coverage over a period of time for multiple shipments, eliminating the need to negotiate a new policy for each voyage. This type of policy simplifies the logistics of securing insurance for regular international shipments.

A small business makes a one-time shipment of artisanal goods to a trade show in Paris. Given their infrequent shipping schedule, which type of insurance policy should they consider and why?

• Open Policy for comprehensive coverage.

• Specific (Voyage) Policy for a single trip’s coverage.

• Open Policy to cover possible future shipments.

• No insurance due to low shipment value.

Answer explanation

For a business making a one-time shipment, a Specific (Voyage) Policy is ideal as it provides coverage specifically tailored to the needs of a single journey. This type of policy is cost-effective for companies not engaged in regular international shipping, offering protection precisely for the duration and specifics of the one-off trip.

An import/export business evaluates its insurance needs for a high volume of varied goods shipped year-round. Considering the complexity and frequency of their shipments, why might an Open Policy be more suitable than multiple Specific (Voyage) Policies?

A) Specific policies offer more customized coverage.

• Specific policies offer more customized coverage.

• Ease of managing one policy for numerous shipments.

• Specific policies are more affordable.

• Open policies require more documentation per shipment.

Answer explanation

An Open Policy would be more suitable for a business with high-volume, varied shipments due to the ease of managing a single policy that automatically covers all shipments made during the policy period. This approach reduces administrative burden and ensures that all goods are continuously covered without the need for frequent policy renewals or adjustments.