Cargo insurance is an important part of international and domestic trade, offering financial protection against the risks that goods face while in transit. It ensures that when cargo is lost, damaged, or destroyed due to unforeseen events, the owner or party with insurable interest is not left to bear the full financial burden. At the heart of every cargo insurance contract is the issue of liability, that is, who bears responsibility when loss occurs, under what conditions, and to what extent compensation is payable.
Historically, the concept of cargo/marine insurance predates modern legal systems, with its origins dating as far back as 300 BC when Chinese merchants protected themselves by spreading goods across different ships. Over time, more formalised systems emerged, including Bottomry arrangements and the development of institutions like Lloyd's of London, which gave cargo/marine insurance a commercial and legal backbone. In modern times, cargo/marine insurance is regulated by laws such as the Marine Insurance Act 1906 in the United Kingdom and its Nigerian counterpart, the Marine Insurance Act 1984. These Acts, which are virtually identical in substance, define a contract of marine insurance as one where the insurer undertakes to indemnify the insured against marine losses as agreed.
Cargo insurance, a branch of marine insurance, specifically protects goods being transported by sea, land, or air. Its core function is to determine liability and provide financial indemnity when the cargo is exposed to certain risks during transit. There are two primary frameworks through which cargo insurance operates: All-Risk and Named Perils. These two types of coverage reflect different levels of protection and determine the scope of the insurer's liability.
All-Risk insurance offers the broadest form of protection. Under this type of policy, the insurer assumes liability for any physical loss or damage to the cargo unless a specific exclusion applies. This means that unless the policy expressly excludes a particular peril such as war, strikes, customs rejection, or delay, the insurer is liable to indemnify the insured. The key advantage of All-Risk coverage is its simplicity during the claims process. The burden is not on the insured to prove that a particular type of peril caused the loss; rather, it is on the insurer to show that the loss falls under an exclusion. As such, All-Risk policies are particularly attractive to shippers of high-value, delicate, or time-sensitive cargo. Despite being more expensive due to their wider scope of liability, these policies offer comprehensive protection and peace of mind.
In contrast, Named Perils insurance is more limited in scope. Under a Named Perils policy, the insurer is only liable if the loss arises from one of the specific perils listed in the policy. These could include fire, sinking, collision, theft, or storm damage. In this case, the insured must prove that the damage or loss was caused by one of the named perils before they can claim compensation. This type of insurance is often more economical and can be tailored to the particular risks a shipment is most likely to face. For instance, if goods are flammable, a shipper may opt to insure only against fire. If the route is known for rough weather or piracy, specific coverage may be taken out for those risks. While Named Perils policies are more cost-effective, they can lead to disputes during claims if the cause of loss is unclear or unlisted.
The legal framework surrounding cargo insurance further shapes how liability is managed. The Marine Insurance Act requires the insured to act in utmost good faith, meaning that all material facts about the cargo, route, and risk must be disclosed. Failure to do so renders the contract voidable. The insured must also have an insurable interest in the cargo, that is, a financial stake in its safety or loss. Proximate cause must be established in any claim: the loss must be directly traceable to a peril covered under the policy. The principle of indemnity ensures that the insured is restored, as far as possible, to the position they were in before the loss occurred.
Another important consideration is the potential for double insurance. If a cargo owner insures the same goods under more than one policy, Section 33 of the Marine Insurance Act comes into play. In such situations, the insured cannot claim more than the actual loss. Instead, the insurers are required to contribute proportionally. This becomes particularly relevant when one policy is an All-Risk policy and the other is a Named Perils policy. Care must be taken to ensure the terms align and that compensation does not exceed the true value of the loss.
In practical terms, choosing between All-Risk and Named Perils requires careful evaluation of several factors. The nature and value of the cargo are paramount. High-value goods typically warrant broader All-Risk coverage to avoid gaps in liability, while less valuable cargo may only need protection against specific, predictable risks. The likely risks along the shipping route also influence this choice. Cargo travelling through high-risk zones, conflict areas, or politically unstable regions may need wider coverage, whereas cargo on a stable route might be adequately protected under a Named Perils policy. The method of sale also plays a role. For example, in CIF (Cost, Insurance and Freight) contracts, the seller must procure insurance for the buyer's benefit, while in FOB (Free on Board) or C&F (Cost and Freight) contracts, the buyer bears the responsibility.
Claims procedures are also influenced by the type of policy. All-Risk claims are generally more straightforward, requiring less technical argument since coverage is presumed unless excluded. Named Perils claims, however, demand a clearer link between the loss and a named risk, often making the process more complex and time-consuming. Where speed and certainty of recovery are important, All-Risk is often preferred.
Ultimately, cargo insurance plays a central role in facilitating international trade by transferring and managing the risks of loss during transit. The decision between All-Risk and Named Perils coverage should be guided not just by cost, but by a realistic appraisal of risk exposure, the legal framework of the insurance contract, the value of the goods, and the ease of pursuing claims. While All-Risk policies provide broader protection and more predictable outcomes, Named Perils policies offer a leaner, more targeted approach suitable for well-understood risks. By aligning the insurance cover with the actual risk profile of the cargo and voyage, parties can ensure that liability is properly managed, losses are fairly compensated, and commercial relationships remain secure in the face of unforeseen disruptions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
