Principles of Co-Insurance
UNDERSTANDING MARINE CARGO INSURANCE -
CO-INSURANCE (UNDER INSURANCE)
We wish to point out an important aspect of coverage as it relates to the value of goods to be insured. Our cargo contracts require goods to be insured for at least their invoice value, if applicable, otherwise their fair market value. This amount can be increased by the addition of freight, insurance, and similiar associated charges, and that sum may be increased by 10%. Coverage allows the shipper to insure for all costs connected with the repair and replacement of goods.
Should the shipper not insure for at least the invoice or fair market value, then he would become a "co-insurer" and participate in the payment of the loss. In its basic form, a covered claim would be handled as follows:
Insured Value / Market or Invoice Value x Amount of Loss = Claim Paid
For example, if a used commercial refrigeration unit not shipped under a sales invoice, was insured for $50,000 while the fair market value was $150,000, the following would be the calculation if there was a partial loss totalling $30,000 in repairs:
$50,000 / $150,000 x $30,000 = $10,000 amount of Claim Paid
The shipper would be a co-insurer in the amount of $20,000. This would be their share of the loss because they insured the cargo only for a third of its full insurable value.
($30,000 - $10,000 = $20,000)
It is not our intent to offer insurance on any account that does not wish to insure in accordance with the concept of the policy. In the event of a loss where Co-Insurance is applied because of Under Insurance , we are all at risk when we do not allow the prescribed insurance to respond fully.