January 18, 2024 | Cargo Insurance
Insuring Cargo in Conflict Zones: Navigating Risks and Understanding Coverage
As featured in the American Journal of Transportation
You may already be familiar with the significant global conflicts that are currently happening. However, what many people may not realize is that there are 25 other ongoing conflicts or unstable security situations worldwide, as defined by the Council of Foreign Relations’ Global Conflict Tracker.
First and foremost, war and its humanitarian toll is a tragedy regardless of your political stance concerning any conflict. War also presents challenges for supply chains that the logistics industry must navigate. And when sending cargo into an adverse environment, risk management and insurance should be of utmost concern.
Understanding Coverage Distinctions
As with any insurance policy, it’s essential to understand what your cargo insurance policy covers and what is not covered. Knowledge of policy coverages and exclusions and their potential impact on your clients is vital to an effective risk management plan. For example, coverage for War perils is initially excluded in the body of a Cargo Policy and then added back under Named Peril conditions via the War Risk Endorsement and the Strikes, Riots, and Civil Commotions (S.R.&C.C) Endorsement. It is vitally important to grasp this seemingly minor coverage distinction of Named Peril coverage.
Under Named Peril Coverage, only named causes of loss are covered. If a cause of loss is not specifically ‘named’ in the coverage wording, it is not covered. In contrast, under the standard “All Risk” coverage, damages are covered unless specifically excluded by the policy. In the insurance industry, the ‘Named Peril’ Coverage approach is a commonly used method to protect against specific risks. It’s important to note that the list of covered perils may vary depending on the policy, so it’s essential to confirm whether the policy protects against the risks you want to insure against.
Standard “All Risk” Coverage is designed to allow coverage for unforeseen or unimaginable circumstances. The reason the coverage needs to be so broad for cargo insurance is that some claims situations are completely unpredictable. The causes of loss or damage to cargo are limitless, but under normal circumstances the routes and destinations are considered safe and loss is not expected. On the other hand, the War Risk or S.R.&C.C. Endorsement is written as Named Peril Coverage, a far more restrictive coverage, specifically because war or any conflict in general can be unpredictable, unimaginable, and can devastate entire regions very quickly.
Loss Triggers, Restrictions and Exclusions
The cause of loss determines whether coverage applies under the War Risk or S.R.&C.C. Endorsement. The S.R.C.C. Endorsement covers damage directly caused by strikes, labor disturbances, riots and rioters, certain acts of terrorism, civil commotions or political uprisings. However, this endorsement is also subject to exclusions, including “civil war, revolution, rebellion, insurrection, and civil strife” (considered more warlike).
Where the S.R.&C.C. Endorsement leaves the policyholder without coverage for the perils of civil war, revolution, and other civil uprisings, the War Risk endorsement responds. The War Risk Endorsement covers physical loss or damage to cargo through war and other warlike operations, including factions engaged in civil war, revolution, rebellion, or civil strife. While this may place most policyholders at ease, it’s essential to understand that the War endorsement provides coverage only while cargo is on board an ocean-going vessel or on an international flight, leaving the shipment without such coverage during the inland portion of transit.
While coverage under a standard Cargo Policy only affords War Risk Coverage while the cargo is on board an ocean-going vessel or on an international flight, coverage for war during inland ground transit (War On Land Coverage) may be available through limited specialty markets. Depending on the risk, this coverage is often cost-prohibitive and includes restrictive coverage provisions or warranties that dictate specific requirements. For instance, underwriters may require armed escorts, only allow storage or pauses in transit at secure facilities, or designate particular transport routes. However, if shipping to a perilous locale is unavoidable, serious consideration of this coverage and the subsequent requirements by underwriters is recommended.
Be Alert : Underwriters Can Cancel Coverage
Cargo underwriters have the right to cancel War and S.R.&C.C. coverage by issuing a notice before the cancellation. The notice period may vary by insurer but is typically 48 hours in the US. Underwriters can cancel the coverage due to sudden and severe situations that may make a destination unsuitable for receiving cargo or exceed the insurer’s capacity to cover. However, underwriters cannot cancel coverage for covered shipments that have already departed. It is of utmost importance to be mindful of this information when preparing shipments to high-risk destinations. We strongly advise you to stay alert to any notifications from your insurer, as they may announce restrictions in response to ever-changing global events.
Take the Time to Learn and Lean on Experts
Understanding the intricacies of insurance coverage can be daunting and time-consuming, but it is an important facet of a comprehensive risk management strategy. Knowing what your insurance does and does not cover becomes even more crucial when the risks are high, and both cargo owners and logistics service providers must give special attention when shipping to areas experiencing conflict and civil unrest. To put your clients in the best position to protect their interests, work closely with an experienced cargo insurance broker who can help you navigate the constantly changing risks associated with armed conflict.
About the Author
Joe Chillino is Senior Vice President for Roanoke and joined the team in 2006. He has gained valuable insurance experience throughout Roanoke’s organization in various roles, including management, sales, marine, and claims. His specialties include Cargo Insurance, Transit Liabilities, Commercial Lines Insurance, Customs Bonds, and Professional Liability Insurance. Joe maintains an Associates in Marine Insurance Management (AMIM) designation with the American Institute For Chartered Property Casualty Underwriters (The Institutes) and a Transportation Risk and Insurance Professional (TRIP) designation through International Risk Management Institute (IRMI).
Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. It should not be construed as an offer to represent you, nor is it intended to create, nor shall the receipt of such information constitute, an attorney-client relationship. Readers are urged to seek professional or legal advice from appropriate parties on all matters mentioned herein. The description of coverages are generalized and are subject to the specific policy’s terms, conditions, and exclusions.