Letter of Credit Forum

Who decides the insured value?

When taking out the insurance cover (voyage police) or when declaring the
value of a shipment (open
cover), the insurer asks the assured to state
the insured value without requiring evidence. The premium to be paid by the
assured is calculated on the basis of this amount.

As far as cargo
insurance is concerned, the insured value is
equal to the actual value of the property, i.e. its fair value plus, where applicable, the
commercial operator’s expected profit. Unlike the provisions of the hull policy,
the concept of agreed value does not exist in cargo
insurance.

If increased value insurance is effected,
this has no impact on the analysis above, since this type of insurance is taken
out to account for either successive increases in the value of the cargo while
in transit within international markets or successive sales that have occurred
during the insurance period.

Theoretically, the assured is free to set the amount of the insured
value. In reality, it is important to exercise due caution when setting this
amount, bearing in mind the following principles at all times:

• Cargo insurance is a form of property
  insurance, which provides cover only for physical
  loss and damage, loss in weight or quantity sustained by the goods, plus any
  expenses incurred to replace such loss or damage, expenses incurred due to an
  interruption in or termination of the voyage, except in the event of financial
  default on the part of the carrier, general average contribution and expenses,
  and fees paid to the surveyor or the average agent.

This type of insurance does not cover the following:
damage caused by the insured goods; liability, regardless of the grounds; or the
consequences of obstacles to the commercial operation of the
assured.

• Nature of the insurance: compensation
  for the loss sustained. As a general and absolute
  principle of law, in no case can the compensation paid to the assured exceed the
  amount that would have been received if the carriage had been performed without
  loss or damage to the goods. Therefore, it is in the interest of the assured to
  work out the insured value carefully, so that full settlement will be
  forthcoming in the event of an insured occurrence.

Under the general conditions of the standard policies, there
are four possible methods for calculating the value to be insured:

• cost price of the goods at destination, plus
  expected profit
• value at destination on the date of arrival, in
  accordance with the rates set by public authorities or qualified professional
  groups, or, if such is not the case, by sworn brokers
• value stipulated in the sales contract, if the
  assured is the seller
• replacement value of manufactured
  goods.

When a claim is filed, the
insurer may request evidence of the actual value of the goods.

• If the assured can prove that the insured value has
  been calculated on the basis of one of the aforementioned methods, the insurer
  will not contest the claim and will use the insured value as a basis for
  settlement.

• If the assured cannot demonstrate the amount of the
  expected profit, the insured value will be the cost price of the goods at
  destination, plus a lump sum of 20% (maximum authorized
  overvaluation).

• If the assured requests cover for the replacement
  value, it is necessary to prove that the damaged goods have been effectively
  replaced and produce the relevant invoices.

NB – Except in the
event of a total loss, the insurer will compare the value of the cargo in
damaged condition with its value in sound condition at destination, to assess
the loss sustained and calculate a percentage of loss. For claims settlement
purposes, the insurer will apply this percentage of loss not to the actual value
of the cargo in sound condition but to the insured value (sum insured) that the
assured has decided on. Because of the proportional rule, it is in the latter’s
interest not to underinsure the cargo.

Revaluation of the insured value during the period of cover

If, during the period of cover,
the assured considers that, for any reason, the actual value of the goods has
become higher than the insured value, a request for increase in value may be
made. If this increase in value is accepted by the insurer, an endorsement will
be signed, provided that the assured was not aware of the occurrence of an event
before making the request.

Last modified:3/5/07

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