UNDERSTANDING AIR CARGO INSURANCE

Insurance against loss of or damage to cargoes sent by air

In aviation it is important to know how cargo insurance is done. From aviation perspective ‘cargo’ has been defined as applying to anything that can be carried and which the carrier has agreed to carry but not ‘baggage. It is the term used to identify goods carried on an aircraft. Such carriage is usually subject to an air waybill or consignment note that prescribes the conditions and limitations applicable to the carriage. International Civil Aviation Organization (ICAO) defined cargo as anything accepted for carriage by aircraft, except baggage. Air cargo generally involves the carriage of high value or time sensitive products.

Unbreakable limits under the Montreal Convention of 1999

Article 22(3) of the Montreal Convention limits the liability for damage of a carrier to 22 Special Drawing Rights (SDRs) per kilogram, which is the Revised limit (SDRs) as of 28 December 2019.Combined with the IATA requirement that member airlines incorporate specific reference to the convention and its liability limit into their air waybills, thereby creates a binding contract as to those issued?air waybills. It should be noted that the use of electronic air waybills under the Montreal Convention of 1999 is obvious. However sometimes less deference on adherence to the Montreal Convention arises where the Warsaw Convention of 1929 may still apply. The limitation of liability under the Warsaw Convention is 250 gold francs per kg (US20/kg/US9.07/lb).And also the special declaration of value by the consignor

?Despite the fact that the carriage of cargo by air is increasingly integrated in terms of the overall end-to-end shipment of cargo, the liability system governing such carriage is still regarded a s unique due to its limited operational connectivity with other modes of transport. This uniqueness has in turn posed legal challenges resulting in what has been described as a legal vacuum on occasion in the context of determining liability. Earlier attempts to devise a convention resulted in the UN Convention of International Transport of Goods signed in Geneva on 24 May 1980, which did not receive the required ratification from countries.

First party coverage for the consignor is provided typically outside the aviation insurance market and placed in the marine market under a ‘cargo policy’ incorporating the Institute Cargo Clauses (Air).Coverage for the liability of the air carrier is provided under the liability section of the air carrier’s comprehensive aviation hull all risks and liability policy or by way of a special endorsement such as AVN92. Air carriers may also acquire a separate stand-alone policy either on a ground up or excess basis, employing for example the Airline Freight Legal Liability and All Risks Wording LPO 359B. The Institute air cargo clauses of 1982 and was revised in 2009 were designed to simplify terminology used in the clauses to make them more comprehensible. The air cargo clauses in use consists of the Institute Cargo Clauses (Air), the Institute War Clauses 9Air Cargo), and the Institute Strikes Clauses (Air Cargo). Under the Institute Cargo Clauses (Air) the insurers undertake to cover all risks of loss or damage to the subject matter insured except as specifically excluded in the clauses. The 2009 clauses also extend coverage to include any salvage-related charges. The risks specifically excluded are contained in a General Exclusions clause, a War Exclusion clause and a Strikes Exclusion Clause.

The insurance attaches from the time the subject matter insured is first?moved in the warehouse or place of storage at the place named in the policy for the commencement of the transit, and continues during the ordinary course of transit and terminates either on the completion of unloading from the carrying vehicle or other conveyance in or at the final warehouse or place of storage at the destination named in the contract of insurance, or on completion of unloading at any other warehouse, premises or place of storage which the insured elects to use, or on the expiry of 30 days after unloading of the subject matter insured from the aircraft at the final place of discharge, whichever shall first occur. The clause s also make provision for termination or continuation of the insurance where the contract of carriage is terminated before delivery of the subject matter insured and where the destination is changed by the insured after attachment of the insurance. Historically, one policy offered in the London market, LPO359B provides both cargo legal liability and all risks insurance cover in one form for carriers. In practice, however, coverage is now more routinely obtained by endorsement to that policy.

?It is important for the insurance provider and cargo handlers to have a sound knowledge on the policies, clauses, exclusions and endorsements in order to transact air cargo operations smoothly.

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