Insurable Value and Sum Insured in Marine Cargo Insurance

Overview

Insurable value and the sum insured are fundamental concepts used to determine the value against which a marine cargo loss is measured and the maximum amount for which the insurer may be liable.

Insurable value is the contractual value of the insurable interest in the cargo. The sum insured is the maximum contractual limit of the insurer's liability. The two amounts are often set at the same figure, but they perform different functions.

In marine cargo insurance, the sum insured may be set at 110% of the CIF value, CIP value, invoice value, or another agreed value that includes freight, premium, and a margin for anticipated profit or incidental costs. Insurance at 110% does not mean that the full 110% will automatically be paid after a casualty.

The claim payment depends on the applicable clauses, insurable value, sum insured, insurable interest, cause of loss, percentage of damage, repair cost, diminution in value, salvage value, deductible, other insurance, and individual endorsements.

The legal treatment of insurable value and underinsurance also depends on the governing law of the individual insurance contract. References in this article to the Marine Insurance Act 1906 describe an important English-law and international marine-market framework. They do not mean that the Act automatically governs every policy issued in Japan.

Scope of This Article

Item	Matters Covered in This Article	Matters Covered in Other Articles
Insurable value	The contractual value of the cargo interest and its possible components	The article on insurable interest addresses who may insure which economic interest
Sum insured	The insurer's limit of liability and its relationship with insurable value	The article on marine cargo claims addresses claim documents and payment procedures
Valued policy	The basic structure of a policy in which value is agreed at inception	The article on reading a marine cargo policy addresses all policy particulars
Unvalued policy	The distinction where insurable value must be established after a casualty	The article on proof and adjustment of cargo loss addresses valuation evidence
110% of CIF or CIP value	The meaning, calculation basis, and limitations of 110% insurance	The CIF and CIP articles address the seller's insurance obligations
Documentary credit requirements	UCP 600 Article 28 and insurance-amount requirements under a letter of credit	The article on discrepancies in insurance documents addresses bank examination
Full insurance, underinsurance, and overinsurance	The effect of the relationship between insurable value and the sum insured	The article on double insurance addresses allocation among multiple insurers
Partial-loss adjustment	Proportional settlement, repair cost, diminution in value, and salvage value	The article on cargo partial-loss calculation addresses detailed adjustment
Increased Value Insurance	Additional cover for value above the primary insurance	The article on Increased Value Insurance addresses individual clause requirements
Carrier liability	The distinction between cargo-policy valuation and carrier damages	The article on cargo claims against carriers addresses liability limits

Purpose and Basic Structure

Indemnity insurance compensates an Assured for economic loss caused by an insured casualty. In cargo insurance, the value exposed to risk may include not only the price of the goods but also freight, premium, handling expenses, and an agreed element of anticipated profit.

The purpose of insurable value is to define the economic interest exposed to the insured risk. The purpose of the sum insured is to establish the maximum liability assumed by the insurer.

After a casualty, the analysis generally proceeds as follows:

1. Confirm that the claimant held an insurable interest.
2. Confirm that the cargo and transit were insured.
3. Identify the insurable value and sum insured.
4. Determine whether the event was insured and not excluded.
5. Classify the loss as total loss, partial loss, repairable damage, or diminution in value.
6. Establish the amount of loss, salvage value, deductible, and any underinsurance.
7. Calculate the payment subject to the sum insured.

The sum insured is therefore not the amount automatically payable after every casualty. It is the maximum limit applicable to an otherwise covered loss.

Difference between Insurable Value and the Sum Insured

Comparison Item	Insurable Value	Sum Insured	Amount of Loss	Practical Meaning
Basic meaning	The contractual value of the insured interest	The insurer's limit of liability	The economic loss caused by the casualty	The three amounts need not be identical
Time of determination	Agreed at inception or established after the casualty	Set when the contract or declaration is made	Established after the casualty	Different evidence is required at each stage
Main evidence	Invoice, freight, premium, valuation, and sales contract	Policy, certificate, and declaration	Repair estimates, survey, sale proceeds, and salvage value	The policy figure does not itself establish the loss
Relationship with the limit	The value of the insured subject matter	The maximum payment limit	The covered actual loss	A loss exceeding the sum insured remains subject to the limit
Underinsurance	Exceeds the sum insured	Falls below the insurable value	May be reduced proportionally	The Assured may bear the uninsured proportion
Overinsurance	Falls below the sum insured	Exceeds the insurable value	Cannot produce payment exceeding the indemnifiable loss	A higher limit cannot create a profit from loss
Deductible	Normally does not determine the insurable value	Normally does not determine the sum insured	May reduce or apply to the adjusted claim	It is a separate contractual concept

Basic Framework under the Marine Insurance Act 1906

The Marine Insurance Act 1906, an important English-law reference, addresses insurable value, valued policies, unvalued policies, partial loss, and underinsurance under separate provisions.

Section	Institution	Basic Effect	Practical Significance
Section 16	Measure of insurable value	For goods, value is based on prime cost together with expenses incidental to shipping and insurance charges	The commodity price alone is not necessarily the complete insurable value
Section 27	Valued policy	The policy specifies an agreed value of the subject matter insured	Subject to the Act and fraud, the agreed value forms the contractual valuation basis
Section 28	Unvalued policy	The value is not stated and is subsequently ascertained subject to the sum insured	The claimant must produce valuation evidence
Section 67	Extent of liability	The insurer's liability remains subject to indemnity principles and the sum insured	The sum insured is a limit rather than an automatic payment
Section 71	Partial loss of goods	Provides basic measures for partial total loss and damage delivered at destination	Repair cost may not be the sole measure of loss
Section 81	Effect of underinsurance	The Assured is treated as its own insurer for the uninsured balance	A partial claim may be reduced in the same proportion

These are English-law provisions. A policy issued in Japan must also be examined under Japanese law, the insurer's general conditions, incorporated English clauses, and individual endorsements.

Valued and Unvalued Policies

Comparison Item	Valued Policy	Unvalued Policy	Practical Caution
Valuation method	The parties agree the value at inception	Value is established after the casualty	Confirm the wording and governing law
Total loss	Based on the agreed value and sum insured	Based on the established insurable value and sum insured	Exclusions, salvage, and other insurance remain relevant
Partial loss	A percentage of loss may be applied to the agreed value	The actual insurable value and loss percentage must be proved	Repair cost is not automatically the payable amount
Main advantage	Reduces valuation disputes after a casualty	Allows actual value to be established later	Select according to the purpose of the insurance
Main risk	The agreed value may diverge substantially from commercial reality	Insufficient evidence may delay the claim	Retain the basis of valuation from inception

An agreed value under a valued policy does not mean that the complete agreed value is payable for every partial loss. The insurer must still determine the percentage of damage, repairability, diminution in value, salvage value, and deductible.

Whether a constructive total loss has occurred may also require a separate analysis. A valued policy should not be treated as a fixed-benefit policy paying the full agreed value whenever damage occurs.

Elements That May Form Part of Insurable Value

Value Element	Reason for Inclusion	Main Evidence	Caution
Invoice value	Represents the basic sales value	Commercial Invoice and sales contract	May exclude freight and other costs
Ocean or air freight	Reflects transport cost exposed to the casualty	Freight Invoice and B/L	Confirm whether freight is prepaid, payable, or refundable
Inland freight	Reflects origin or destination transport costs	Carrier invoice or quotation	Confirm that the stage is insured
Insurance premium	Reflects the cost of obtaining the insurance	Premium calculation	Use the insurer's method where the calculation is circular
Packing and handling	May be required again after a total loss	Packing and handling invoices	Not automatically included under every policy
Duties and taxes	May represent an unrecoverable economic burden	Customs entry and tax documents	Confirm refundability and any endorsement
Anticipated profit	Reflects an agreed commercial profit attached to safe arrival	Sales contract and margin records	Does not necessarily equal the additional 10%
Additional procurement costs	May reflect reasonable replacement expenses	Replacement quotations and additional freight	Delay damages and penalties are not automatically covered

Meaning of 110% of CIF or CIP Value

Marine cargo insurance is often arranged for 110% of the CIF value, CIP value, or contract value.

The basic calculation is:

Sum Insured = CIF or CIP Value × 110%

If the CIF value is JPY 50 million, the 110% sum insured is JPY 55 million.

Item	Amount	Calculation	Practical Meaning
CIF value	JPY 50,000,000	Contract value including cargo, freight, and insurance	Calculation basis
Additional 10%	JPY 5,000,000	JPY 50,000,000 × 10%	Margin for agreed profit or incidental expenses
Sum insured	JPY 55,000,000	JPY 50,000,000 × 110%	Basis of the insurer's maximum liability

The additional 10% does not automatically cover every replacement cost, currency loss, delay, penalty, loss of profit, or substitute freight expense. A payment requires a covered loss falling within the valuation and sum insured and not excluded by the policy.

Although 110% is a common standard, it may be insufficient for volatile commodities, bespoke machinery, long transits, project cargo, cargo requiring lengthy remanufacture, or shipments involving substantial replacement freight.

Incoterms and UCP 600 Use 110% for Different Purposes

Rule or Contract	Function of 110%	Value to Be Reviewed	Main Parties	Caution
CIF or CIP under Incoterms	Defines the minimum insurance amount to be arranged by the seller	Generally the contract value	Seller and buyer	The sales contract may provide different requirements
UCP 600 Article 28	Defines the minimum insurance amount for a documentary presentation	CIF or CIP value and specified alternatives	Banks, beneficiary, and applicant	It governs document compliance rather than claim coverage
Cargo insurance contract	Sets the insurer's contractual liability limit	Policy insurable value and sum insured	Insurer and Assured	Insured perils, exclusions, and amount of loss remain relevant
Internal insurance procedure	Standardises declarations under an open cover	Invoice, freight, profit, and related expenses	Insurance, sales, and accounting staff	Define the calculation separately for each sales term

Where a credit states a percentage of the value of the goods or invoice value, UCP 600 Article 28 treats that percentage as the minimum required amount.

If the credit does not state the required amount of insurance, the amount must generally be at least 110% of the CIF or CIP value. Where the CIF or CIP value cannot be determined from the documents, the basis is the greater of the amount for which honour or negotiation is requested and the gross invoice value.

The insurance document must also generally be in the same currency as the credit.

A valid insurance contract may exist, but an insurance document with an insufficient amount or incorrect currency may still constitute a documentary discrepancy.

Valuation under Different Sales Terms

Sales Term	Typical Party Arranging Insurance	Starting Point for Valuation	Costs Frequently Omitted	Practical Review
CIF	Seller	CIF contract value	Buyer's inland transit, broader cover, and special-cargo costs	Review 110%, ICC condition, currency, and assignment
CIP	Seller	CIP contract value	Multimodal additional expenses and final delivery costs	Review the entire transit and 110%
FOB	Buyer	FOB invoice plus freight, premium, and related costs	Ocean freight, premium, and destination costs	Do not insure the invoice amount alone
FCA	Buyer	FCA contract value plus main-carriage costs	Air freight, ocean freight, and inland carriage	Attach cover upon delivery to the first carrier
DAP	Seller	Contract value to the named destination	Destination storage, waiting, and redelivery	Review cover and value until before unloading
DDP	Seller	Destination value including relevant duties and costs	Import duties, tax, inland delivery, and storage	Confirm whether taxes form part of the insurable value

Full Insurance, Underinsurance, and Overinsurance

Position	Relationship	Basic Effect after a Casualty	Practical Caution
Fully insured	Sum insured equals insurable value	No reduction solely for underinsurance	Exclusions and actual loss still apply
Underinsured	Sum insured is lower than insurable value	The Assured may bear a proportion of the loss	Review proportional-settlement provisions
Overinsured	Sum insured exceeds insurable value	Payment cannot exceed the indemnifiable loss	Premium may be unnecessarily high
Double insurance	Multiple policies exceed the total permitted indemnity	Contribution or allocation among insurers may be required	Disclose all other insurance

Proportional Calculation for Underinsurance

Where the sum insured is lower than the insurable value and the policy or governing law applies proportional settlement, the basic model is:

Proportional Payment = Covered Loss × Sum Insured ÷ Insurable Value

If the insurable value is JPY 100 million, the sum insured is JPY 80 million, and the covered partial loss is JPY 30 million:

JPY 30 million × JPY 80 million ÷ JPY 100 million = JPY 24 million

Item	Amount	Percentage	Result
Insurable value	JPY 100,000,000	100%	Total contractual value
Sum insured	JPY 80,000,000	80%	20% uninsured
Covered loss	JPY 30,000,000	30% of insurable value	Basis of calculation
Proportional payment	JPY 24,000,000	80% of the loss	Basic amount before any deductible
Assured's portion	JPY 6,000,000	20% of the loss	Uninsured proportion

This formula must not be applied mechanically to every cargo policy.

The adjustment may differ according to valued-policy provisions, loss percentage, partial total loss, diminution at destination, repair-cost wording, deductible, valuation method, and individual endorsements.

The applicable adjustment provision should be confirmed with the insurer or insurance agent.

Total Loss, Partial Loss, Repair Cost, and Diminution in Value

Loss Category	Main Adjustment Factors	Relationship with Value and Limit	Main Evidence
Actual total loss	Destruction, disappearance, or irretrievable deprivation	Subject to the sum insured and valid insurable value	Survey, evidence of loss, and transport records
Constructive total loss	Comparison of recovery or repair cost with value	Not determined automatically by the agreed value	Repair, recovery, and salvage estimates
Partial total loss	Quantity or value of the part completely lost	Proportion applied to the insured or agreed value	Packing List, weight, and quantity records
Repairable damage	Reasonable repair, transport, and repacking costs	Subject to the sum insured and reasonableness of repair	Repair estimates, invoices, and technical reports
Diminution in value	Difference between sound and damaged values	A percentage reduction may be applied to the agreed value	Market valuation, tender, and appraisal
Sale of salvage	Sale proceeds and disposal expenses	Salvage value may reduce the adjusted loss	Tender results, sale contract, and disposal certificate

Difference between 110% Insurance and Increased Value Insurance

Insurance for 110% of CIF or CIP value creates a margin within the primary cargo policy.

Increased Value Insurance may be arranged as separate or additional insurance for an insurable value or commercial interest exceeding the primary insurance.

Comparison Item	110% Insurance	Increased Value Insurance	Practical Caution
Contract structure	Forms part of the sum insured under the primary policy	May be arranged as separate additional cover	Review the policy and other-insurance provisions
Principal purpose	Allows a margin for profit or incidental expenses	Covers an additional value or interest above the primary policy	No double recovery is permitted
Typical use	Ordinary CIF or CIP transactions	Price increases, resale profit, or additional acquisition value	Prove the additional insurable interest
Loss adjustment	Subject to the primary valuation and clauses	Subject to allocation provisions with the primary insurance	Review any requirement to maintain the primary policy
Declaration	Included in the ordinary cargo declaration	The increased value is separately declared	Post-casualty insurance may not be available

Where market price, resale value, or replacement cost may rise materially during transit, ordinary 110% insurance may be insufficient.

Increased Value Insurance does not guarantee unconditional recovery of every price increase. The additional insurable interest, relationship with the primary policy, cause of loss, payment order, and other-insurance provisions must be reviewed.

Valuation of Special Cargo

Cargo	Why Invoice Value May Be Insufficient	Additional Value to Review	Main Evidence
Used machinery	Acquisition price may differ from repair or replacement value	Appraisal, refurbishment, and equivalent replacement value	Appraisal, maintenance, and sales records
Bespoke machinery	Remanufacture requires design, tooling, and long production time	Remanufacture, design, and emergency freight	Manufacturing quotation and design contract
Fine art and antiques	Market value fluctuates and an ordinary invoice may not exist	Professional appraisal and market value	Appraisal and purchase records
Exhibition goods and samples	Manufacturing cost may not reflect functional or exhibition value	Remanufacture and exhibition preparation	Cost records and exhibition contract
Free-issued goods	The invoice may show zero or nominal value	Production or replacement cost	Proforma Invoice and cost records
Market commodities	Prices may change substantially during transit	Market value and Increased Value	Market data and sales contract
Project cargo	Damage to one item may affect replacement of an integrated system	Remanufacture, additional engineering, and freight	Project contract and schedule

Comparison with Other Value and Insurance Concepts

Concept	Principal Meaning	Relationship with Insurable Value	Relationship with the Sum Insured	Caution
Invoice value	Amount charged under the sale	Common starting point	May be adopted as the declared amount	May exclude freight and related costs
CIF or CIP value	Contract value including cargo, freight, and insurance	Common valuation basis	Used in the 110% calculation	May not equal every actual additional expense
Replacement value	Cost of obtaining equivalent property	May support valuation of special cargo	Excess above the limit is not recoverable unless insured	A post-loss price increase is not automatically covered
Market value	Value at the time of loss or arrival	May be relevant under an unvalued policy or diminution claim	Applied subject to the sum insured	May differ from the agreed value
Deductible	Amount retained by the Assured	Does not itself establish insurable value	Applies separately from the limit	Confirm whether it applies per occurrence or package
Carrier's liability limit	Maximum damages recoverable from a carrier	Separate from cargo-policy valuation	Does not equal the cargo-policy limit	May be based on weight or packages
Increased Value	Additional value or interest above primary cover	Represents an additional insurable interest	Uses a separate additional sum insured	Review allocation with the primary insurance

Situations Where the General Calculations Do Not Apply Directly

Situation	Reason	Contract or Evidence to Review
Fixed-benefit special contract	The payment method differs from ordinary indemnity	Individual policy
Special valuation clause	Uses replacement, selling, or another contractual value	Valuation Clause
General average or salvage charges	Uses a contribution calculation separate from physical damage	ICC and general average adjustment
Constructive total loss	Requires comparison of recovery and repair costs with value	Governing law, wording, and repair estimates
Bulk valuation of multiple cargoes	Value must be apportioned among individual items	Invoice, Packing List, and valuation schedule
Double insurance	Allocation among multiple insurers may be required	All policies and other-insurance clauses
Foreign-law policy	Legal treatment of valuation and underinsurance may differ	Governing law and foreign wording
Sanctions or payment restrictions	Payment may be restricted notwithstanding the policy limit	Sanctions clause and applicable law

Decision Flow for Setting Insurable Value and the Sum Insured

1. Confirm the sales term and contract currency.
2. Identify the party bearing the risk and the party holding the insurable interest.
3. Determine which freight, premium, packing, handling, and other costs should be added to the invoice value.
4. Select the valuation basis appropriate to CIF, CIP, FOB, FCA, or another term.
5. Review the letter of credit and application of UCP 600.
6. Determine whether 110% is sufficient or whether additional value or Increased Value Insurance is required.
7. Obtain appraisals or replacement evidence for used, bespoke, or free-issued goods.
8. Compare the insurable value with the sum insured and identify underinsurance or overinsurance.
9. Determine the currency, exchange date, and rounding method.
10. Review deductibles, commodity clauses, and endorsements.
11. Record the calculation basis in the policy or declaration.
12. Establish a procedure for revised declarations following changes in price, freight, or destination.

The central issue is not the mechanical use of 110%. It is the reasonable identification of the economic value exposed to loss and its correct incorporation into the insurance contract.

Cases That Frequently Cause Practical Problems

Case	Main Cause	Documents and Evidence	Decision Point	Initial Response
Insurance based only on the FOB invoice	Failure to add freight and premium	Invoice, freight invoice, and policy	Whether the cargo is underinsured	Recalculate the value and correct it before shipment
Failure to meet the L/C 110% requirement	Incorrect basis or exchange rate	Letter of credit, invoice, and policy	Compliance with UCP 600 and credit terms	Obtain a corrected policy before presentation
Insurance currency differs from the credit	Incorrect currency selected in the declaration	Credit, policy, and exchange records	Whether the currency matches the credit	Request amendment from the insurer
Proportional reduction of a partial loss	Sum insured below insurable value	Valuation, loss schedule, and policy	Underinsurance provision and percentage of loss	Obtain the calculation basis in writing
Low invoice value for used machinery	Book value or related-party price	Appraisal, replacement quotation, and maintenance records	Whether the true insurable interest is reflected	Agree a value before shipment
Market price rises after the casualty	Price change not reflected in the sum insured	Market data, sales contract, and policy	Scope of primary or Increased Value cover	Confirm the existing contractual limit
Repair cost exceeds the sum insured	Bespoke design or emergency repair	Repair estimates, alternatives, and insured value	Total loss, constructive total loss, or partial loss	Consult the insurer before repair begins
Salvage disposed of before survey	Premature disposal	Disposal certificate, photographs, and market evidence	Salvage value and loss-mitigation duty	Obtain insurer approval before disposal
Assumption that the additional 10% covers all forwarding expenses	Overstatement of the purpose of the 10% margin	Additional freight, clauses, and loss schedule	Whether the expense is covered and within the limit	Consult the insurer before incurring the expense

Documents to Be Reviewed by Practitioners

Document	Item to Review	Purpose	Action if Unclear
Commercial Invoice	Amount, currency, and Incoterms	Identify the starting point of valuation	Compare it with the sales contract
Freight Invoice	Ocean, air, and inland freight	Add relevant freight to the valuation	Use an estimated amount before final invoicing
Policy or certificate	Insurable value, sum insured, currency, and wording	Identify the contractual limit	Request written confirmation from the insurer
Open-cover agreement	Valuation formula, 110%, and declaration requirements	Identify the basis of each declaration	Obtain the renewal history
Letter of credit	Percentage, currency, condition, and transit	Identify documentary requirements	Consult the bank before shipment
Appraisal or replacement quotation	Value of used or special cargo	Establish a basis other than the invoice	Obtain a professional appraisal
Survey report	Cause, percentage of loss, and salvage value	Adjust the insurance claim	Arrange the survey before repair or disposal
Repair and sale evidence	Repair cost, diminution, and salvage proceeds	Establish the actual amount of loss	Obtain multiple quotations or conduct a tender

Application Scenario 1: Underinsurance of FOB Cargo Shipped through Yokohama

Assume that a Japanese buyer purchases machinery for JPY 80 million on FOB terms. After adding ocean freight, premium, and related costs, the insurable value for the import through Yokohama is JPY 100 million.

The buyer insures only the invoice amount of JPY 80 million. A covered partial loss of JPY 30 million occurs during transit.

The buyer argues that the complete JPY 30 million should be paid because the loss is below the JPY 80 million policy limit.

The insurer argues that only 80% of the insurable value was insured and applies the policy's proportional-underinsurance provision.

Under a proportional-settlement model:

JPY 30 million × JPY 80 million ÷ JPY 100 million = JPY 24 million

The basic adjusted amount before the deductible would be JPY 24 million, leaving JPY 6 million as the Assured's uninsured proportion.

The actual adjustment must also confirm whether the policy is valued, how the percentage of damage is measured, and when the deductible is applied.

Application Scenario 2: Insufficient L/C Insurance Amount for CIF Cargo Arriving at Kobe

Assume that a Japanese importer purchases cargo with a CIF Kobe value of JPY 50 million under a documentary credit subject to UCP 600. The credit does not separately state an insurance percentage.

The seller presents an insurance policy for JPY 52 million and argues that the amount exceeds the full cargo value.

The bank determines that UCP 600 Article 28 requires at least 110% of the CIF value where the credit is otherwise silent. The required amount is therefore JPY 55 million.

This is principally a documentary-compliance issue rather than a determination of coverage after a casualty.

The policy may provide valid insurance up to JPY 52 million, but the bank may nevertheless reject the presentation as discrepant.

Before shipment, the seller should compare the CIF value, 110% calculation, currency, and policy amount and obtain a corrected document where necessary.

Application Scenario 3: Claim for the Complete Agreed Value of Used Machinery Arriving at Nagoya

Assume that a Japanese importer obtains a valued policy for used machine tools arriving at Nagoya. The agreed insurable value and sum insured are JPY 45 million, based on an appraisal, refurbishment cost, and freight.

During transit, a major component is damaged. Repair is estimated at JPY 12 million, post-repair diminution at JPY 5 million, and the residual value of the undamaged property at JPY 28 million.

The importer argues that the complete JPY 45 million is payable because the policy is valued at that amount.

The insurer argues that the machinery has not been destroyed and can be reasonably repaired. The agreed value is the valuation basis, not an automatic full payment for partial damage.

The parties must determine whether the casualty is an actual or constructive total loss, whether repair is economically reasonable, whether diminution is proved, and how salvage or residual value is treated.

A valued policy reduces disputes over the value of the insured property but does not convert partial damage into a total loss. Repair cost, diminution, and other covered expenses are adjusted subject to the sum insured.

Common Misunderstandings

Misunderstanding	Correct Analysis	Practical Caution
Insurable value and the sum insured are identical concepts	Insurable value is the value at risk; the sum insured is the liability limit	Distinguish the two in the policy
Insurance at 110% guarantees payment of 110%	Only the covered loss is paid, subject to exclusions and adjustment	Do not treat the limit as a fixed benefit
The additional 10% covers every extra cost	Only insured expenses and loss are recoverable	Separate delay, penalties, and loss of profit
A loss below the sum insured is paid in full despite underinsurance	Proportional reduction may apply	Review the relationship with insurable value
A valued policy pays the full agreed value for partial damage	The agreed value is a basis of adjustment, not an automatic payment	Distinguish total and partial loss
A higher sum insured creates a profit after loss	Indemnity cannot exceed the covered economic loss	Avoid unnecessary overinsurance
The invoice value is always sufficient	Freight, premium, and incidental costs may be omitted	Calculate according to the sales term
The L/C 110% rule and insurance claim payment mean the same thing	One concerns document compliance and the other concerns policy liability	Separate bank examination from claim coverage
Every repair estimate is automatically payable	Reasonableness, diminution, salvage, and exclusions must be reviewed	Consult the insurer before repair
Increased Value Insurance pays every increase in value	An additional insurable interest and compliance with the wording are required	Review allocation with the primary insurance

Decision Checklist

Review Stage	Party to Consult	Item to Confirm	Action if a Problem Is Identified
When concluding the sales contract	Seller, buyer, and sales staff	Incoterms, contract value, and currency	Define the insurance calculation basis
When concluding the insurance contract	Insurer and insurance agent	Insurable value, sum insured, 110%, and clauses	Provide a valuation calculation and amend the conditions
When renewing an open cover	Insurer and internal insurance staff	Valuation formula, profit percentage, and declaration method	Update internal procedures
Before issuing a letter of credit	Bank, seller, and buyer	Percentage, currency, clauses, and transit	Replace ambiguous requirements with specific terms
When arranging an FOB or FCA import	Buyer, freight forwarder, and insurer	Freight and costs outside the invoice value	Add the main-carriage costs to the declaration
Before shipment of used or special cargo	Appraiser, insurer, and cargo owner	Appraised, replacement, and repair values	Consider a valued policy
When price or freight changes	Sales, logistics, and insurance staff	Revised insurable value and sum insured	Redeclare before shipment or promptly after discovery
Immediately after a casualty	Insurer, surveyor, and carrier	Total or partial loss, amount of loss, and salvage	Preserve evidence before repair or disposal
When selecting a repair method	Insurer, manufacturer, and repair contractor	Repair cost, alternatives, diminution, and timing	Obtain agreement on a reasonable repair method
When underinsurance is alleged	Insurer and insurance agent	Applicable formula, insurable value, and deductible	Obtain the calculation basis in writing
When a legal dispute arises	Insurer, maritime lawyer, and legal staff	Governing law, valuation clause, adjustment, and deadlines	Reserve rights and act within the claim period

When to Consult a Maritime Lawyer

Routine valuation, casualty notification, and claim adjustment should generally be handled with the insurer or insurance agent. Advice from a lawyer experienced in marine insurance and international trade should be considered where:

• The validity or effect of the agreed value under a valued policy is disputed
• The proportional-underinsurance calculation or order of deductible application is disputed
• The classification as total loss, constructive total loss, or partial loss is disputed
• The parties cannot agree the value of used, artistic, or special cargo
• Allocation between Increased Value Insurance and the primary policy is disputed
• A foreign insurer relies on the Marine Insurance Act 1906 or other foreign law to reduce or reject the claim
• A documentary discrepancy under a letter of credit causes additional contractual loss
• The insurer, carrier, and seller apply different valuation bases
• An insurance claim deadline, carrier notice period, or litigation time bar is approaching

The cargo-policy sum insured, carrier's liability limit, damages under the sales contract, and insurance amount required under a letter of credit are calculated under different legal and contractual frameworks. A figure used under one contract should not automatically be applied to another.

Summary

Insurable value is the contractual value of the insurable interest in the cargo. The sum insured is the maximum amount of the insurer's liability. The claim payment is not automatically equal to the sum insured but is adjusted according to the covered loss, exclusions, salvage value, deductible, and underinsurance.

Marine cargo insurance is often arranged for 110% of CIF or CIP value. The additional margin may allow for agreed profit and incidental expenses, but it does not automatically insure every replacement expense, delay loss, penalty, or loss of profit.

In a documentary credit subject to UCP 600, where no different amount is stated, insurance must generally be for at least 110% of the CIF or CIP value. This is a documentary requirement and must be reviewed separately from the insurer's liability after a casualty.

Where the sum insured is lower than the insurable value, proportional settlement may apply under the policy and governing law. Insurance of JPY 80 million against an insurable value of JPY 100 million may result in the Assured being treated as its own insurer for the remaining 20%.

A valued policy reduces disputes over cargo value but does not require payment of the complete agreed value for partial damage. Repair cost, diminution, salvage value, and the distinction between total and partial loss remain relevant.

In practice, insurable value and the sum insured should be established before shipment by reference to the sales term, invoice, freight, premium, letter of credit, cargo characteristics, and price volatility. Where 110% is insufficient, additional insurance or Increased Value Insurance should be considered and incorporated before the insured risk begins.