Tuesday, March 14, 2023

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Can you spot the difference? Marine Cargo Insurance vs Freight Liability Insurance

We often get asked why and when freight forwarders need Marine Cargo Insurance. Some also wonder why Freight Liability Insurance is not always sufficient on its own, or whether having both insurances just duplicates cover. Marine Cargo and Freight Liability are two separate policies offering different types of insurance coverage. In this article, we take a closer look at the differences between Cargo and Freight Liability Insurance and the situations in which you need them.


What is Marine Cargo Insurance and what does it cover?  

Marine Cargo Insurance is a first-party insurance that covers against physical loss and damage to goods/cargo while they are in transit, be it air-freight shipments, sea-freight shipments, or inland transits. If the insured items are lost and/or damaged, the policy will indemnify this loss up to the full value of the goods.

Typically, Marine Cargo Insurance will exclude the following (not exhaustive):

  • Ammunition goods
  • Dangerous goods
  • Hazardous goods
  • Perishable goods
  • Temperature controlled/sensitive goods

Other common policy exclusions:

  • Radioactive contamination, chemical, biological, bio-chemical, and electromagnetic weapons
  • Rust, oxidation, and discolouration
  • Nuclear energy risks
  • Sanction limitation & exclusion clause
  • Economic and trade sanctions
  • Shipments to sanctioned countries

Who needs Marine Cargo Insurance?

Cargo owners have a financial interest in the goods/cargo. In the event of a claimable incident, they are indemnified from the financial loss. Sometimes customers (who are the cargo owners) ask their freight forwarders to purchase Marine Cargo Insurance on their behalf. In such instances, freight forwarders will need to take up Marine Cargo Insurance.


What is Freight Liability Insurance and what does it cover?  

Freight Liability covers the freight forwarder’s legal liability to third parties during the course of conducting their business. Freight Liability is also known as Transport Operator Liability or Multimodal Freight Liability Insurance.

A typical Freight Liability policy includes cover for:

  • Freight Liability: indemnifies the policy holder for all sums for which they become legally liable to pay as compensation for freight property damage
  • Professional Indemnity: any loss resulting from any claim for civil liability arising out of any wrongful act committed during the policy holder’s services is paid to or on behalf of the policy holder
  • Third Party Liability: indemnifies the policy holder for sums which they become legally liable to pay as compensation for third party property damage or bodily injury

Common policy exclusions are:

  • Accounting errors or unexplained disappearance or shortages of goods/cargo
  • Asbestos or materials containing asbestos
  • Dangerous goods
  • Financial failure, trading debts & insolvency
  • Sanctions

Who needs Freight Liability Insurance?

Freight Forwarders who handle goods/cargo on behalf of their clients are encouraged to have this insurance in place. If the goods/cargo are lost or damaged, the freight forwarder is liable to compensate their customer for the loss. Although there are usually Standard Trading Conditions in place to limit the Freight Forwarders’ liability (e.g., Standard Trading Condition of the Singapore Logistics Association, 7 May 2004, where liability is charged at SGD 5.00 per gross kilogram), the freight forwarder would still need to pay compensation up to the limits. This can amount to a substantial loss if the cargo is heavy.

With you all the way

Please reach out if you’d like to know more about these two classes of insurance and how it could protect your business.

Jacqueline Chan

Senior Client Manager


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Honan Insurance Group Pty Ltd is now fully owned by Marsh Pty Ltd. To find out more, speak to your broker or read the announcement