In 1668, a coffee house in London was a popular place to meet with people in the shipping industry. The high seas were extremely dangerous and you could lose your entire ship and all of its cargo. This would have been a devastating loss for shipping companies, not only in terms of human lives lost but also the financial loss. In order to avoid this, several shipping company owners decided to each pay a certain amount into a fund. This would allow them all to share the loss and the fund would reimburse them for the difference. The financial risk associated with running a shipping business was greatly reduced and the first modern insurance policy was created.
It is still called the original coffee house and trades in insurance, even though it no longer serves coffee. It is, of course, Lloyd’s of London.
Lloyds still sells goods for transit insurance, also known by cargo insurance or freight insurance. However, the policies have changed significantly over time.
In the beginning, goods-in-transit insurance was intended to cover damage to or loss of goods while they were being transported between one place and another. However, over several hundred years and many claims, policies have been refined and numerous trade associations have been established to assist and advise carriers.
Common Law states that any damage to or loss sustained by a carrier when they take over the property of another person’s property is their responsibility, regardless of how it occurred.
Example: A van transporting goods is involved in an accident involving another driver. The van is destroyed and no cargo can be salvaged. Common Law holds that even though the other driver caused the loss, the carrier is legally liable for replacing the goods. This should not be a problem as the other driver’s policy would cover it unless they are uninsured. The carrier would then have a large expense to cover.
As shown in the above example, sometimes circumstances arise that are not the carrier’s fault but are totally out of their control. Therefore, it seems unfair to have the carrier pay for such situations.
But isn’t that what an Insurance policy is for?
Both yes and no. Each insurance policy will have its limits. Insurance premiums would be too high if you tried to cover every possibility. Trade associations are here to help. These trade associations have developed their own standardised legal contracts that work instead of Common Law. The advantage is that carriers are not held completely responsible for all situations. Instead, they can limit the amount of responsibility they may be held accountable.
One example is: Many contracts disclaim any responsibility for damages or losses caused by war, terrorist acts, radioactivity, natural disasters, etc.
Insurance policies will benefit from this. If a carrier follows a standardised carriage arrangement, there is less risk that an insurer will cover. It is also easier to quantify, which results in lower premiums and more precise policy wordings. To provide adequate protection for a carrier’s operations, standard terms and conditions must be combined with insurance. But it is important that the policy complements the contract. Without the other, you will not have full coverage.