The Relationship Between Salvage Fees and Cargo Insurance
Interlink編集部Relationship Between Salvage Charges and Cargo Insurance
The relationship between salvage charges and cargo insurance is a practical logistics issue that organizes how ocean marine cargo insurance relates to salvage charges and general average contributions borne by the cargo owner when a vessel or cargo is salvaged due to a marine casualty.
Salvage charges are fees paid to salvors or salvage contractors who conduct salvage operations when a vessel or cargo encounters a marine casualty. Even if the cargo is undamaged, if the salvage activity is considered to have protected the cargo’s value, the cargo owner may be involved with salvage charges and the provision of security.
When cargo insurance is in place, the insurer, based on the insurance terms, may be involved in issuing General Average Guarantees, handling Salvage Security, paying general average contributions and salvage charges, verifying required documents, and considering subrogation claims.
On the other hand, if there is no cargo insurance, the shipper may be required to handle deposits, bank guarantees, Salvage Security, general average contributions, and salvage charges themselves. Therefore, the relationship between salvage charges and cargo insurance requires confirming separately not only whether the cargo has been damaged but also the issues of salvage charges, general average, security, insurance terms, and claims.
Scope Covered in This Article
This article does not focus on the definition of salvage charges themselves or detailed aspects of LOF, but rather organizes how cargo insurance relates to salvage charges and general average contributions.
| Theme | Contents Covered in This Article | Contents Covered in Other Articles |
|---|---|---|
| Basics of salvage charges | Explains the meaning of salvage charges and their impact on cargo from the perspective necessary for cargo insurance handling. | The definition of salvage charges, calculation factors, and Salvage Security details are covered in the article “What Are Salvage Charges?” |
| LOF and SCOPIC | Reviewed in relation to insurer notifications, salvage charge security, and P&I Club responses. | Details on LOF, No cure, no pay, and SCOPIC clauses are handled in “Salvage Contracts and LOF Explained.” |
| Cargo insurance coverage | Organizes the relationship with ICC clauses, insured sums, ancillary conditions, exclusions, and insurance periods. | General coverage scopes under ICC(A), ICC(B), and ICC(C) are covered in the cargo insurance terms article. |
| Insurer responses | Outlines accident notifications, guarantee issuance, security handling, required documents, final payments, and subrogation claims. | Specific insurance claim procedures and damage assessments are handled in the insurance claim practices article. |
| Uninsured cargo | Organizes deposits, bank guarantees, out-of-pocket expenses, and risks of delivery delays. | Contractual liability and prior explanations to shippers in case of uninsured cargo are dealt with in the trade terms and insurance arrangement article. |
| LCL consolidated cargo | Organizes insurance status per shipper, cargo value, necessity of security, and document submission status. | The liability relationship of LCL consolidation itself and NVOCC responsibility is covered in other detailed articles. |
| Subrogation claims | Organizes the insurer’s possibility of claiming recovery from carriers or responsible parties after payment. | Legal requirements and litigation assessments for subrogation require expert confirmation. |
Insurance Response May Be Required Even Without Cargo Damage
Salvage charges and general average contributions are not only an issue when cargo is damaged.
For example, if the vessel runs aground and the salvage contractor performs refloating operations, and the cargo safely arrives at the destination, it may still be evaluated that the salvage activities protected the cargo’s value. In such cases, the cargo owner may be required to bear salvage charges or general average contributions.
From the shipper’s perspective, there are situations where they wonder why the insurer must be contacted if the cargo is not damaged. However, cargo insurance may be related not only to cargo damage or loss but also, based on insurance terms, to processing salvage charges and general average contributions.
| Situation | Cargo Damage | Reason Insurance Response May Be Needed | Practical Initial Actions |
|---|---|---|---|
| Refloating operations after grounding | May be none. | Salvage charges or general average contributions may be incurred. | Share incident notification and B/L with the insurer. |
| Fire followed by firefighting and towing | May or may not be present. | Salvage charges, firefighting damage, and general average could arise. | Check with the insurer whether surveyor arrangement is needed. |
| Towing to a safe port due to machinery failure | May be none. | Towing costs and salvage charges may be handled as general average. | Confirm guidance from the shipping company or P&I Club. |
| Environmental pollution prevention measures performed | May be none. | SCOPIC clause, P&I Club, and special compensation may be involved. | Confirm whether LOF or SCOPIC notifications have been issued. |
| Cargo delivery is stopped | Separate from whether damage exists. | Guarantees, Salvage Security, deposits, or other requirements may be outstanding. | Create a checklist of outstanding documents and security requirements. |
ICC Cargo Insurance Clauses and Salvage Charges / General Average
Ocean marine cargo insurance under clauses such as the Institute Cargo Clauses (ICC) makes General Average and Salvage Charges a matter for insurance coverage.
However, salvage charges and general average contributions are not automatically paid unconditionally. The insurance conditions, insured sums, exclusions, insurance period, cargo value, B/L clauses, and cause of the accident all need to be checked.
| Insurance Terms and Issues | Relationship with Salvage Charges and General Average | Points to Check |
|---|---|---|
| ICC(A) | General Average and salvage charges are relevant as insured risks. | Check exclusions, insured amount, cause of the incident, and insurance period. |
| ICC(B) | General Average and salvage charges are relevant as insured risks. | Check relationship with covered perils and exclusions. |
| ICC(C) | General Average and salvage charges are relevant as insured risks. | As this is a limited coverage condition, confirm cause of incident and covered perils. |
| War / Strikes and other clauses | Other conditions may apply depending on the cause of the incident. | Confirm relation to war, strikes, terrorism, and political risks. |
| Insured amount | Impacts deductible amounts and scope of coverage. | Confirm invoice value, CIF value, and whether an increased insurance amount is included. |
| Exclusions | There may be parts that the insurer cannot cover. | Check for intent, usual leakage or natural wear, improper packing, knowledge of unseaworthiness, and other exclusions. |
In actual logistics practice, it is important not to simply assume that salvage charges will always be paid under the insurance, but to verify the insurance policy, applicable clauses, additional conditions, exclusions, and cause of the incident with the insurance company.
Main Actions Taken by Insurance Companies
If cargo insurance is in place, the insurer may take several steps regarding salvage charges and general average contributions.
| Action | Details | Practical Points |
|---|---|---|
| Accident notification reception | Confirm details of the marine accident, salvage operations, and general average declaration. | Early notification is required even if there is no cargo damage. |
| Verification of insurance terms | Confirm applicable clauses, insured amounts, additional conditions, and exclusions. | Match the insurance policy with the accident details. |
| Issuance of General Average Guarantee | Guarantee payment of general average contributions. | Check designated formats from the general average adjuster or shipping company. |
| Handling of Salvage Security | Consider issuance of Salvage Security or salvage charge guarantees. | These differ in recipients and purpose from General Average Guarantees. |
| Document verification | Check B/L, invoice, packing list, insurance policy, and value declaration documents. | Lack of documents can delay issuance of guarantees or security measures. |
| Payment of final contributions and salvage charges | Make payment based on insurance terms after settlement. | Confirm in case of insufficient insured amounts or uncovered portions. |
| Consideration of subrogation | After payment, consider subrogation claims against carriers or responsible parties. | Preservation of accident documents, Survey Report, B/L, and notification records is important. |
Insurance Company Handling Flow
When salvage charges or general average contributions become an issue, the insurer’s handling proceeds in stages.
| Stage | Insurance Company Checks | Shipper / Forwarder Actions | Notes |
|---|---|---|---|
| 1. Accident notification | Confirm details of the marine accident, salvage operations, and whether a general average declaration was made. | Contact the insurer promptly upon receiving notification. | Notify even if there is no cargo damage. |
| 2. Insurance policy verification | Check insurance policy, ICC terms, additional clauses, and insured amounts. | Submit the insurance policy or insurance certificate. | Confirm any shortfall in insured amount or applicable exclusions. |
| 3. Document verification | Check B/L, invoice, packing list, value declaration, and general average guidance documents. | Share documents from the adjuster or shipping company. | Document omissions can delay security arrangements. |
| 4. Guarantee and security handling | Decide on issuance of General Average Guarantee, Salvage Security, or salvage charge guarantees. | Confirm recipients, deadlines, original document requirements, and format specifications. | Manage general average and salvage charge guarantees separately. |
| 5. Cargo release confirmation | Confirm if cargo release is permitted after guarantee submission. | Confirm D/O exchange, CFS pickup, storage charges, Demurrage, and Detention. | Even if security is in place, actual release must be separately verified. |
| 6. Final settlement | Confirm General Average Adjustment Statement and final salvage charges. | Share settlement statements, invoices, and payment advice with the insurance company. | Settlement can be prolonged. |
| 7. Payment and subrogation | Make payment based on insurance terms and consider subrogation claims where applicable. | Preserve all accident documentation, Survey Reports, and notification letters. | Do not agree to waivers or settlements before insurer confirmation. |
Differences Between Guarantees and Security Provided
An important point in the relationship between salvage charges and cargo insurance is the difference between guarantees and security. Although General Average Guarantees and Salvage Security may look similar, their recipients and purposes differ.
| Document / Security | Subject | Submission To | Insurance Company Involvement |
|---|---|---|---|
| General Average Guarantee | General average contribution | Shipping line or general average adjuster | May be issued by the marine cargo insurance company. |
| General Average Bond | General average contribution | Shipping line or general average adjuster | Signed by the cargo owner side; insurance company may be involved in content verification. |
| Cargo Value Declaration | Confirmation of contribution value | General average adjuster, salvor, insurance company, or other relevant party | May verify consistency with insured value. |
| Salvage Security | Salvage charges | Salvor or salvage contractor’s agent | Insurance company may be involved in providing security. |
| Salvage Guarantee | Salvage charges | Salvor or salvage contractor’s agent | May be issued or confirmed by the insurance company. |
| Deposit / Bank Guarantee | General average or salvage charges | Shipping line, adjuster, salvor, or other relevant party | Can become an issue if uninsured or guarantee cannot be obtained. |
Even if a General Average Guarantee is submitted, cargo delivery may not proceed if Salvage Security is not addressed. Security for salvage charges and general average should be verified separately.
Relation to Insured Amount and Insurance Conditions
When dealing with salvage charges and general average contributions through insurance, the insured amount and coverage conditions are important factors.
Even if marine cargo insurance is in place, if the insured amount is insufficient, the insurance company may not cover everything unconditionally. It is necessary to check uninsured portions, shortfalls in insured value, and the presence or absence of additional insured amounts.
| Check Item | Description | Common Issues |
|---|---|---|
| Invoice value | The sales value of the cargo. | In FOB or CFR terms, freight and insurance costs may be excluded. |
| CIF value | The value including cargo price, ocean freight, and insurance premium. | Often used as a basis for verifying general average or salvage contribution amounts. |
| Insured amount | The coverage amount stated on the insurance policy. | If lower than the cargo value, uninsured portions may cause issues. |
| Additional insured amount | Increased coverage amount including profit and other charges. | If not insured, consistency with the total cargo value needs to be verified. |
| Basis of valuation | FOB, CFR, CIF, and similar trade terms. | Affects the calculation of amount on the Cargo Value Declaration. |
| Exclusions | Damage or costs not covered by insurance. | Insurance company’s coverage scope varies depending on cause and policy conditions. |
When Cargo Is Uninsured
If marine cargo insurance is not arranged, salvage charges and general average contributions may become the direct responsibility of the cargo owner.
Because a General Average Guarantee or Salvage Guarantee cannot be obtained from the insurance company, shipping lines, general average adjusters, salvors, or salvage contractors may require deposits or bank guarantees.
| Item | With Marine Cargo Insurance | Without Marine Cargo Insurance | Practical Impact |
|---|---|---|---|
| General Average Guarantee | May be issued by the insurance company. | Often not obtainable, and deposits may be required. | Cash burden tends to be heavier without insurance. |
| Salvage Security | Insurance company may be involved in security arrangements. | Cargo owner may have to arrange security or bank guarantees themselves. | Approval and remittance procedures can cause delays. |
| Financial burden | Cash burden may be reduced. | High deposits or contributions may be directly borne. | Funds may need to be prepared before cargo release. |
| Cargo delivery | Proceeding is easier if necessary documents are ready. | Delays may occur due to deposit preparation and internal approvals. | Could lead to storage charges, Demurrage, and Detention. |
| Final contribution / salvage charges | May be handled by insurance company based on policy terms. | Becomes the direct financial responsibility of the cargo owner. | Unexpected financial burdens may arise after the incident. |
For uninsured cargo, not only the cargo damage itself but also salvage charges, general average contributions, security provision, cargo delivery delays, storage fees, Demurrage, and Detention represent significant risks.
Insurance Handling for LCL Consolidated Cargo
For LCL consolidated cargo, since multiple cargo owners’ goods are loaded in the same container, insurance subscription status, cargo values, submitted documents, and security arrangements may differ per cargo owner.
| Situation | Common Issues | Freight Forwarder / NVOCC Response | Reference Documents |
|---|---|---|---|
| Mixed cargo owners with and without insurance subscriptions | Cargo is sorted into those proceeding with guarantees and those requiring deposits. | Check insurance subscription status for each cargo owner. | House B/L, insurance certificates, list by cargo owner |
| Inconsistent submission of Cargo Value Declarations | Confirmation of apportioned cargo value is delayed. | Manage invoices, contract prices, and cargo values by cargo owner. | Invoice, Packing List, Cargo Value Declaration forms |
| Delayed security handling by some cargo owners | May affect CFS delivery or sorting operations. | Create a list of submission status, delivery terms, and additional fees. | Settlement instructions, CFS notices, submission records |
| NVOCC is requested to handle collectively from actual carriers | NVOCC may be pressured to respond before collecting from House B/L cargo owners. | Verify House B/L, standard trading terms, and communication records with cargo owners. | Master B/L, House B/L, internal billing records |
Relationship with Subrogation Claims
If the cargo insurance company pays salvage charges, general average contributions, or cargo damage claims, the insurer may subrogate and claim compensation from carriers, shipping lines, or responsible parties on behalf of the cargo owner. This process is called subrogation.
Even if salvage charges or general average contributions are paid by insurance, if the cause of the accident involves liability, unseaworthiness, or management issues on the carrier's side, the insurer may consider pursuing subrogation after payment.
| Scenario | Subrogation Considerations | Cargo Owner / Freight Forwarder Actions | Documents to Retain |
|---|---|---|---|
| If the insurer has paid salvage charges | Depending on the accident cause, subrogation against responsible parties may be considered. | Retain accident notifications, B/L, shipping line communications, and salvage charge documents. | Accident notifications, Salvage Security requests, insurer communication records |
| If the insurer has paid general average contributions | If unseaworthiness or carrier liability is an issue, subrogation claims may arise. | Keep General Average Declaration forms, adjustment statements, guarantees, and Survey Reports. | General Average Declarations, General Average Adjustment Statements, B/L |
| If there is cargo damage | Cargo damage, salvage charges, and general average claims need to be handled separately for subrogation. | Secure photos, inspection records, damage details, and Survey Reports. | Survey Reports, photos, delivery records, inspection records |
| If the cargo owner independently agrees to a waiver of liability | This could affect the insurer’s subrogation rights. | Confirm with the insurance company before releasing liability or settling claims. | Settlement drafts, exemption consent forms, email records |
Relationship with LOF and SCOPIC
In incidents involving salvage charges, salvage contracts and LOF, or Lloyd's Open Form, may be relevant.
LOF is a commonly used salvage contract form in international maritime salvage operations. Based on the "No cure, no pay" principle, salvage work proceeds first, with salvage remuneration determined afterwards.
There may also be issues related to the SCOPIC clause concerning environmental pollution prevention and special compensation. While cargo owners rarely enter into LOF contracts directly, the outcomes of salvage contracts on the vessel’s side may impact cargo interests, involving salvage charges, general average, security provision, and insurance matters.
This article does not delve into the details of LOF or SCOPIC. In marine cargo insurance practice, it is important to check for the existence of LOF, Salvage Security demands, SCOPIC involvement, P&I Club notices, and timely notification to the insurance company.
Timing to Contact the Insurance Company
If you receive notifications related to salvage charges or general average from the shipping line, P&I Club, salvors, salvage contractors, or general average adjusters, promptly contact the marine cargo insurance company or insurance broker.
Regardless of whether the cargo is damaged, General Average Guarantees, Salvage Security, salvage charge guarantees, Cargo Value Declarations, and General Average Bonds may be required.
| Notification / Situation | Reason to Contact Insurance Company | Main Documents to Share |
|---|---|---|
| Received General Average Declaration | Issuance of General Average Guarantees and handling of contributions become necessary. | General Average Declaration, B/L, Invoice, insurance certificate |
| Received Salvage Security demand | Response to salvage charge security is needed. | Salvage Security demand, incident notice, cargo information |
| Received LOF or SCOPIC notices | Salvage charges, special compensation, and P&I Club involvement are relevant. | LOF notices, SCOPIC notices, P&I Club communications |
| Cargo delivery is on hold | To check for shortage of guarantees, security, or necessary documents. | Shipping line notices, CFS announcements, list of outstanding documents |
| There is cargo damage | Surveyor arrangement, damage confirmation, and subrogation handling are required. | Photos, inspection records, Survey Reports, delivery records |
Operational Flow
The basic flow when salvage charges involve marine cargo insurance is as follows.
| Step | What to Confirm | Points to Note | Parties Involved |
|---|---|---|---|
| 1. Notification of marine accident | Confirm details of the accident such as grounding, fire, flooding, collision, drifting, or similar incidents. | Do not judge only by presence or absence of cargo damage. | Shipping company, overseas agents, NVOCC |
| 2. Confirmation of insurance coverage | Check whether the shipper has marine cargo insurance. | Confirm contact details of the insurance company and agent early. | Shipper, insurance agent, sales representative |
| 3. Accident notification to insurance company | Share accident notice, B/L, Invoice, and insurance policy. | Guarantees or security arrangements do not proceed automatically. | Insurance company, insurance agent |
| 4. Confirmation of Salvage Security | Confirm whether Salvage Security or salvage guarantees are required. | May be required separately from General Average Guarantees. | Salvor’s representative, insurance company |
| 5. Confirmation of General Average documents | Confirm the need for General Average Guarantee, General Average Bond, Cargo Value Declaration, and deposit. | Manage submission destinations and deadlines separately. | General average adjuster, shipping company, insurance company |
| 6. Confirmation of cargo delivery | Check D/O exchange, CFS pickup, storage fees, Demurrage, and Detention. | If security is not submitted, cargo may be held. | Shipping company, CFS, customs broker |
| 7. Final settlement | Confirm finalized salvage charges, General Average Adjustment Statement, and insurance payout. | Settlement may be prolonged. | Insurance company, general average adjuster, salvor |
| 8. Subrogation handling | Confirm accident cause, carrier liability, and subrogation documents. | Keep accident documents and Survey Reports. | Insurance company, shipper, freight forwarder |
Forwarder / NVOCC Involvement Scope
Freight forwarders and NVOCCs do not make the final decision on insurance payment eligibility or the reasonableness of salvage charges. However, they have a practical role in organizing accident information, insurance coverage status, necessary documents, security demands, and cargo delivery conditions, supporting coordination between the shipper and the insurance company.
| Category | Support Tasks | Matters Not to Be Decided | Practical Response |
|---|---|---|---|
| Sharing accident information | Share vessel name, B/L number, accident details, and shipping company notices with the shipper and insurance company. | Final judgment on accident cause or carrier liability. | Accurately forward received notices and record them in chronological order. |
| Confirmation of insurance coverage | Confirm whether shippers have insurance, the insurance company, and the presence of insurance policies. | Assuming insurance will definitely pay. | Request submission of insurance policies or insurance coverage certificates. |
| Salvage Security handling | Organize submission destinations, deadlines, required documents, and share with the insurance company. | Judging legal necessity or appropriateness of the security amount. | Manage it separately from General Average as security for salvage charges. |
| General Average handling | Organize guidance on General Average Guarantees, General Average Bonds, and Cargo Value Declarations. | Final judgment on the validity of general average contribution amounts. | Confirm with both the general average adjuster and the insurance company. |
| LCL consolidation handling | Manage insurance status, cargo value, document submission, and security requirements per shipper. | Explain that all shippers proceed under the same insurance handling. | Check progress and outstanding documents via a shipper management list. |
| Confirmation of cargo delivery | Confirm D/O exchange, CFS pickup, storage fees, Demurrage, and Detention. | Explain that cargo will definitely be released even if security is not submitted. | Confirm the dates when security remains unprovided and when additional charges occur. |
| Preservation of subrogation documents | Preserve B/L, accident notices, Survey Reports, photos, and settlement documents. | Judging success of subrogation claims or legal responsibilities. | Gather documents requested by the insurance company promptly. |
Judgment Checklist
| Situation for Confirmation | Party to Confirm With | Items to Confirm | Actions if Issues Arise |
|---|---|---|---|
| Upon receiving first report of a marine casualty | Shipping company, overseas agent, NVOCC | Details of the incident, vessel name, B/L number, cargo location, presence of salvage operations | Promptly inform the shipper and insurance company, and continuously check for additional information. |
| When confirming cargo insurance status | Shipper, insurance agent, in-house sales staff | Whether insurance is in place, insurance company, insurance policy, insured amount, coverage conditions | If uninsured, explain deposit, bank guarantee, or self-bearing risk. |
| Upon receiving a Salvage Security demand | Salvage contractor’s agent, insurance company, shipper | Submission destination, deadline, amount, form of guarantee, required documents | Manage it separately as security distinct from the General Average Bond. |
| Upon receiving a General Average Declaration | Shipping company, general average adjuster, insurance company | General Average Bond, Cargo Value Declaration, submission deadline | Do not confuse it with salvage-side security; manage separately with a different list. |
| When multiple cargo owners are involved in LCL consolidated cargo | Shipper, NVOCC, CFS, insurance company | Insurance status by shipper, cargo value, required documents, whether security is necessary | Create a management table per shipper and track submissions that are still outstanding. |
| Before cargo delivery | Shipping company, CFS, customs broker, general average adjuster | Possibility to exchange D/O, permission for pickup, outstanding security, additional charges | Share unresolved issues with the shipper, insurance company, and other stakeholders. |
| After insurance company’s payment | Insurance company, shipper, in-house management department | Possibility of subrogation, retention of documentation, presence or absence of waiver or settlement | Keep incident documentation to avoid obstructing the insurance company's subrogation claim. |
Common Trouble Patterns
| Case | Common Problem Points | Documents to Check | Practical Response |
|---|---|---|---|
| No contact made with insurance company because cargo was undamaged | Overlooking that salvage charges and general average contributions may involve insurance coverage. | Accident notifications, General Average Declaration, Salvage Security demand | Notify the insurance company as soon as salvage charges or general average information is received. |
| Cargo is insured but delivery is withheld | Unaddressed issues such as guarantee issuance requests, Salvage Security, or General Average Bonds. | Insurance company notices, adjuster notices, list of submission documents | Separate verification of insurance documents and shipper-signed documents. |
| General Average Bond submitted but cargo is not released | Salvage Security related to salvage charges remains unsubmitted. | Salvage Security demands, General Average Bond, submission records | Manage security from general average and salvage charge sides separately. |
| Insurance amount shortage causes partial self-payment issues | Lacking confirmation of insured value, CIF value, or increased insured amount. | Insurance policy, invoice, freight details, Cargo Value Declaration | Verify consistency between insured amount and Cargo Value Declaration. |
| LCL partial shipper delays in responding | Not managing insurance status or document submission status per shipper. | House B/L, shipper-specific invoices, insurance policies, submission status tables | Create per-shipper management tables and confirm submission status. |
| Required documents for subrogation are missing | Prioritizing only cargo delivery, neglecting preservation of accident-related documents. | B/L, accident notifications, Survey Report, adjustment statement, security demands | Preserve accident-related documents to share with the insurance company. |
| Exclusion clauses or insurance period issues discovered later | Judging solely on insurance enrollment without checking policy clauses or accident causes. | Insurance policy, ICC clauses, additional conditions, accident report | Request the insurance company to verify accident details against insurance policy conditions. |
Common Misunderstandings
| Misunderstanding | Correct Understanding | Practical Caution |
|---|---|---|
| If there is no cargo damage, there is no need to contact the insurance company. | When salvage charges or general average contributions are at issue, contact with the insurance company is needed even without cargo damage. | Share salvage charge and general average notifications with the insurance company as soon as they are received. |
| If cargo insurance is in place, a guarantee will automatically be issued. | Notification to the insurance company, submission of required documents, and confirmation of insurance conditions are necessary. | Early collection of insurance policies, B/L, invoices, and adjuster notices is important. |
| Submitting a General Average Bond resolves salvage charge issues. | General Average Bonds and Salvage Security are separate types of security. | Confirm submission destinations, expense targets, and outstanding security separately. |
| Regardless of insured amount, full coverage will be provided. | Insufficient insured amounts, uninsured portions, and exclusions require verification. | Confirm consistency between Cargo Value Declaration and insured amount. |
| Once the insurance company pays, everything is resolved. | The insurance company may pursue subrogation after payment. | Keep accident documents, Survey Reports, B/L, and adjustment statements. |
| In LCL consolidations, insurance coverage can be handled collectively by container. | In practice, insurance enrollment, cargo value, document submission, and security requirements differ per shipper. | Manage per shipper and differentiate between insured and uninsured shippers. |
Points for Freight Forwarders and NVOCCs to Check
| Check Item | Details to Confirm | Party to Check With |
|---|---|---|
| Accident details | Confirm whether the accident involves salvage charges such as grounding, fire, flooding, collision, drifting, or similar events. | Shipping company, overseas agent, NVOCC |
| Cargo insurance | Confirm for each shipper whether insurance coverage exists, insurer details, and insured amount. | Shipper, insurance agent, internal sales representative |
| Notification to insurer | Share Declaration of General Average, Salvage Security requests, and LOF information. | Insurance company, insurance agent |
| Insurance terms | Verify ICC clauses, additional conditions, exclusions, and any insurance amount shortfalls. | Insurance company, insurance agent |
| General Average Guarantee | Check if the insurer can issue a General Average Guarantee. | Insurance company, general average adjuster |
| Salvage Security | Confirm if Salvage Security or separate salvage guarantees are required. | Salvage contractor’s agent, insurance company |
| Required documents | Prepare B/L, Invoice, Packing List, insurance policy, and Cargo Value Declaration forms. | Shipper, customs clearance agent, insurance company |
| LCL consolidation | Manage insurance status, document submission, and guarantee requirements per shipper. | Shipper, NVOCC, CFS, insurance company |
| Cargo delivery | Confirm D/O exchange, CFS pickup, storage fees, Demurrage, and Detention charges. | Shipping company, CFS, customs agent |
| Subrogation | Keep accident documents, Survey Report, shipping company notifications, and adjustment statements. | Insurance company, shipper, internal management department |
Documents to Check in Actual Logistics Practice
- Accident notifications from the shipping company or P&I Club
- Salvage Security requests from the salvor, salvage contractor, or their agent
- LOF or salvage contract-related notices
- Information regarding SCOPIC clause
- Declaration of General Average
- Documents from the general average adjuster
- B/L and its terms and conditions on the back
- House B/L and Master B/L
- Invoice
- Packing List
- Cargo Value Declaration form
- Insurance policy or insurance certificate
- General Average Guarantee
- General Average Bond
- Salvage Guarantee
- Survey Report
- Photos, inspection records, damage details
- General Average Adjustment Statement
- Communications with the insurance company
- Notices about cargo delivery permission, storage fees, Demurrage, and Detention
Case Study 1: When No Cargo Damage Occurs but Insurance Company Support Is Needed
A container ship grounded, and salvage operations to refloat the vessel were conducted. The cargo was undamaged and ultimately arrived at the destination.
However, since the salvage operation preserved the cargo's value, salvage charges and general average contributions became issues. The shipper had marine cargo insurance, so an accident notification was sent to the insurer, and verification of the General Average Guarantee and necessary documents was initiated.
Thus, even if there is no cargo damage, early contact with the cargo insurance company is required when salvage charges or general average contributions are involved.
Case Study 2: When Insurance Amount Shortfall Becomes a Problem
Marine cargo insurance was placed on high-value cargo, but the insured amount was insufficient compared to the actual cargo value or CIF value.
When proceeding with guarantee arrangements for salvage charges and general average contributions, the insurer checked the insured amount, Cargo Value Declaration form, Invoice, freight, and insurance premium. As a result, additional confirmation from the shipper was required for uninsured portions.
Regarding salvage charges and marine cargo insurance, it is important not only whether coverage exists, but also the insured amount and coverage conditions.
Case Study 3: Insurance Handling Differs for LCL Consolidated Cargo
LCL consolidated cargo became an issue due to general average and salvage charges. One shipper had cargo insurance and the insurer proceeded with issuing guarantees. Meanwhile, another shipper was uninsured and needed to prepare a cash deposit or bank guarantee.
The NVOCC needed to manage each shipper’s insurance status, cargo value, required documents, and guarantee necessity. Delays in handling for certain shippers could affect delivery and sorting at the CFS.
Important Points
In the relationship between salvage charges and marine cargo insurance, judgment should not be based solely on whether cargo damage has occurred. Even if cargo is unharmed, if salvage operations preserve cargo value, salvage charges and general average contributions may become issues.
Also, even if marine cargo insurance is in place, the insurer does not automatically issue General Average Guarantees or provide salvage charge guarantees. Submission of accident notifications, insurance policies, B/L, Invoice, Packing List, Cargo Value Declarations, and general average documents is necessary.
Moreover, insurance amount shortfalls, uninsured portions, exclusions, coverage periods, or inappropriate waiver agreements by the shipper may affect the insurer’s scope of response.
After the insurer pays salvage charges or general average contributions, subrogation may become an issue. Shippers and freight forwarders should keep accident data, Survey Reports, B/Ls, shipping company notices, Salvage Security requests, and General Average Adjustment Statements.
Summary
Regarding salvage charges and marine cargo insurance, it is necessary to confirm not only whether cargo has been damaged, but also whether the cargo value was preserved by salvage operations, whether salvage charges or general average contributions have occurred, and whether guarantees or security are required.
For ocean marine cargo insurance, the insurer may be involved with salvage charges, general average contributions, General Average Guarantees, Salvage Security, and salvage charge guarantees according to insurance terms. However, the scope of coverage varies depending on the insured amount, coverage conditions, exclusions, and uninsured portions.
If cargo insurance is not in place, the shipper may have to bear cash deposits, bank guarantees, salvage charge guarantees, and general average contributions. This poses risks separate from cargo damage.
When salvage charges become an issue, it is important for freight forwarders and NVOCCs to promptly organize the insurance coverage status of each shipper, required documents, notifications to the insurance company, where to submit security, the impact on cargo delivery, and preservation of documents needed for subrogation claims.
