Issue of cover note /Policy document

i) Cover Note

A cover note is a document granting cover provisionally

pending the issue of a regular policy. It happens frequently

that all the details required for the purpose of issuing a

policy are not available. For instance, the name of the

steamer, the number and date of the railway receipt, the

number of packages involved in transit, etc., may not be

known.

ii) Marine Policy

This is a document which is an evidence of the contract of

marine insurance. It contains the individual details such

as name of the insured, details of goods etc. These have

been identified earlier. The policy makes specific reference

to the risks covered. A policy covering a single shipment

or consignment is known as specific policy.

iii) Open Policy

An open policy is also known as ‘floating policy’. It is

worded in general terms and is issued to take care of all

“shipments” coming within its scope. It is issued for a

substantial amount to cover shipments or sending during

a particular period of time. Declarations are made under

the open policy and these go to reduce the sum insured.

Open policies are normally issued for a year. If they are

fully declared before that time, a fresh policy may be

issued, or an endorsement placed on the original policy

for the additional amount. On the other hand, if the policy

has run its normal period and is cancelled, a proportionate

premium on the unutilised balance is refunded to the

insured if full premium had been earlier collected.

On receipt of each declaration, a separate certificate of

insurance is issued. An open policy is a stamped

document, and, therefore, certificates of insurance issued

thereunder need not be stamped.
life insurance quote

Open policies are generally issued to cover inland

consignments.

There are certain advantages of an open policy compared

to specific policies. These are:

(a) Automatic and continuous insurance protection.

(b) Clerical labour is considerably reduced.

(c) Some saving in stamp duty. This may be substantial,

particularly in the case of inland sendings.

iv) Open Cover

An open cover is particularly useful for large export and

import firms-making numerous regular shipments who

would otherwise find it very inconvenient to obtain

insurance cover separately for each and every shipment.

It is also possible that through an oversight on the part of

the insured a particular shipment may remain uncovered

and should a loss arises in respect of such shipment, it

would fall on the insured themselves to be borne by them.

In order to overcome such a disadvantage, a permanent

form of insurance protection by means of an open cover

is taken by big firms having regular shipments.

An open cover describes the cargo, voyage and cover in general

terms and takes care automatically of all shipments which fall

within its scope. It is usually issued for a period of 12 months

and is renewable annually. It is subject to cancellation on

either side, i.e., the insurer or the insured, by giving due

notice.

Since no stamps are affixed to the open cover, specific policies

or certificates of insurance are issued against declaration and

they are required to be stamped according to the Stamp Act.

There is no limit to the total number or value of shipments

that can be declared under the open cover.

The following are the important features of an open policy/

open cover.

(a) Limit per bottom or per conveyance

The limit per bottom means that the value of a single

shipment declared under the open cover should not

exceed the stipulated amount.

(b) Basis of Valuation

The ‘Basis’ normally adopted is the prime cost of the

goods, freight and other charges incidental to shipment,

cost of insurance, plus 10% to cover profits, (the percentage

to cover profits may be sometimes higher by prior

agreement with the clients).

(c) Location Clause

While the limit per bottom mentioned under (a) above is

helpful in restricting the commitment of insurers on any

one vessel, it may happen in actual practice that a number

of different shipments falling under the scope of the open

cover may accumulate at the port of shipment. The

location clause limits the liability of the insurers at any

one time or place before shipment.Generally, this is the same limit as the limit per bottom

or conveyance specified in the cover, but sometimes it

may be agreed at an amount, say, upto 200% thereof.

(d) Rate

A schedule of agreed rates is attached to each open cover.

(e) Terms

There may be different terms applying to different

commodities covered under the open cover, and they are

clearly stipulated.

(f) Declaration Clause

The insured is made responsible to declare each and every

shipment coming within the scope of the open cover. An

unscrupulous insured may omit a few declarations to save

premium, specially when he knows that shipment has

arrived safely. Hence the clause.

(g) Cancellation Clause

This clause provides for cancellation of the contract with

a certain period of notice, e.g., a month’s notice on either

side. In case of War & S.R.C.C. risks, the period of notice

is much shorter.

Distinction between “Open policy” and “Open cover”

The open policy differs from an open cover in certain

important respects. They are :

(a) The open policy is a stamped document and is,

therefore, legally enforceable in itself, whereas an

open cover is unstamped and has no legal validity

unless backed by a stamped policy/certificate of

insurance.

(b) An open policy is issued for a fixed sum insured,

whereas there is no such limit of amount under any

open cover. As and when shipments are made under

the open policy, they have to be declared to the

insurers and the sum insured under the open policy

reduces by the amount of such declarations. When

the total of the declarations amounts to the sum

insured under the open policy, the open policy stands

exhausted and has to be replaced by a fresh one.

h) Certificate of Insurance

A certificate of insurance is issued to satisfy the

requirements of the insured or the banks in respect of

each declaration made under an open cover and / or open

policy. The certificate, which is substituted for specific

policy, is a simple document containing particulars of the

shipment or sending. The number of open contract under

which it is issued is mentioned, and occasionally, terms

and conditions of the original cover are also mentioned.

Certificates need not be stamped when the original policy

has been duly stamped.

Types of Marine Insurance

a) Special Declaration Policy

This is a form of floating policy issued to clients whose

annual estimated dispatches (i.e. turnover) by rail / road

/ inland waterways exceed Rs 2 crores.

Declaration of dispatches shall be made at periodical

intervals and premium is adjusted on expiry of the policy

based on the total declared amount.

When the policy is issued sum insured should be based

on previous year’s turnover or in case of fresh proposals,

on a fair estimate of annual dispatches.

A discount in the rates of premium based on turnover

amount (e.g. exceeding Rs.5 crores etc.) on a slab basis

and loss ratio is applicable.

b) Special Storage Risks Insurance

This insurance is granted in conjunction with an open

policy or a special declaration policy.

The purpose of this policy is to cover goods lying at the

Railway premises or carrier’s godowns after termination

of transit cover under open or special declaration policies

but pending clearance by the consignees. The cover

terminates when delivery is taken by the consignee or

payment is received by the consignor, whichever is earlier.

c) Annual Policy

This policy, issued for 12 months, covers goods belonging

to the insured, which are not under contract of sale, and

which are in transit by rail / road from specified depots /

processing units to other specified depots / processing

units.

d) “Duty”life insurance quote

Cargo imported into India is subject to payment of

Customs Duty, as per the Customs Act. This duty can be

included in the value of the cargo insured under a Marine

Cargo Policy, or a separate policy can be issued in which

case the Duty Insurance Clause is incorporated in the

policy. Warranty provides that the claim under the Duty

Policy would be payable only if the claim under the cargo

policy is payable.

e) “Increased Value” Insurance

Insurance may be ‘goods at destination port’ on the date

of landing if it is higher than the CIF and Duty value of

the cargo.

2.6 PROCEDURE OF CLAIM SETTLEMENT:

As the risk coverages are different for import/export and inland

(with in India) consignments, the procedure of claim settlement

is explained separately.

2.6.1 For Import/Export consignments

Claims Documents

Claims under marine policies have to be supported by certain

documents which vary according to the type of loss as also the

circumstances of the claim and the mode of carriage.

The documents required for any claim are as under:

a) Intimation to the Insurance company: As soon as the

loss is discovered then it is the duty of the policyholder to

inform the Insurance company to enable it to assess the

loss.

b) Policy: The original policy or certificate of insurance is to

be submitted to the company. This document establishes

the claimant’s title and also serves as an evidence of the

subject matter being actually insured.

c) Bill of Lading : Bill of Lading is a document which serves

as evidence that the goods were actually shipped. It also

gives the particulars of cargo.