What's Happening?

Facebook Twitter Youtube Linkedin

NEED HELP? QUESTIONS@FIA.ORG.ZA

become A FIA member TODAY
member login

The difference between carrier cargo liability and first party cover

ARTICLE BY

  • AON South Africa

SHARE THIS POST

Aon South Africa is a leading global professional services firm providing a broad range of risk, retirement and health solutions. In the press release below, Aon South Africa shares the difference between carrier cargo liability and first party cover

Recently a marine insurer paid a heavy penalty after it was identified that they were breaking the Financial Advisory and Intermediary Services (FAIS) & Short-Term Insurance Act (STIA) regulations. The main issues were that the carrier/third party sold insurance to the cargo owners, and the policy was issued in the name of the carrier on behalf of the cargo owners, without adhering to the relevant FAIS & STIA legislation.
  
Kennedy Ntenjwa, Aon South Africa’s Broking Centre Manager for Marine says most carriers do not want to be bothered or burdened with the administration and compliance issues around STIA & FAIS.  “Simply put:  Offering the carrier a first party policy on behalf of the cargo owner is not a feasible approach.  The situation is further exacerbated when the carrier cannot repay or refuses to repay a loss suffered to goods while in their care, custody or control.  The cargo owner’s only recourse is to take legal action against the carrier, not to mention taking their business elsewhere. It is therefore quintessential for carriers to have liability cover in place to secure their livelihood,” explains Kennedy.
  
Understanding the difference between a first party policy and a carrier cargo liability offering, is crucial.   “A common misconception in the freight industry is that a carrier goods in transit policy, also known as First Party cover, benefits the carrier; when it actually benefits the owner of the goods being transported,” Kennedy points out.  
  
Insurable interest arises through ownership and the insurer will always indemnify the owner of the goods.  The carrier enjoys no cover under a first party policy.  The carrier can, however, arrange cover on behalf of the cargo owner if they receive written instruction to do so. However, the carrier can only offer cover if they:

  • have a valid FSP License issued by the FSB,
  • are FAIS compliant as a financial service provider as per the amended FAIS Act,
  • have approval from an insurer, and
  • have the necessary authority regarding STIA to collect/handle premiums in a legally compliant manner.

    
A carrier cargo liability policy is a third-party liability policy that provides cover to the carrier of the goods. “The carrier is able to insure any acts of negligence, whether gross negligence or common-law negligence, for loss or damage to third-party property if the cargo owner is enforcing a claim against the carrier,” says Kennedy.
  
“The insurable interest arises from any liability that is defined in the insurance policy that may cause damage to a customer’s property while transporting it. The emphasis being: whilst the customer’s property is in the carrier’s or their approved sub-contractors’ care, custody or control.  It indemnifies the carrier and not the owner of the goods,” he explains. 
  
Carrier cargo liability policies need to be structured in such a way that they comply with FSB regulations.  “In this respect, cargo carriers need to understand that they may not offer full first-party goods in transit cover to a client or pass the insurance cost to the actual cargo owners,” Kennedy clarifies.
  
Cargo carriers are able to negotiate commercial contracts, independent from insurance policies, with cargo owners. However, they’ll then accept certain liabilities following an event while the goods are in their care, custody or control, which may result in financial loss to the cargo owner. 

“Cargo carriers need to be cognisant of the fact that a private and independent commercial contract between themselves and a cargo owner translates into no cover for consequential losses through an insurer.  Any insurance agreement entered into with the cargo carrier is structured around liability and defined perils as per the relevant institute and non-institute clauses or any other warranties that the insurance policy may contain, with cover not extended to loss or damage in general,” warns Kennedy.  
  
“Although legal liability goods in transit cover has been around for many years, the difficulty lies in the fact that most insurers offer policies on a strict legal liability basis. Losses will only be settled if it can be proven that the loss/damage directly resulted from gross negligence by the carrier, not providing the carrier with an optimal solution. This has led to the development of a more relaxed or carrier-friendly carriers cargo liability policy which a select few marine markets are now offering,” explains Kennedy.
  
“The FSB’s legislational intent and practical application around policies issued to third parties are still considered to be a grey area, even by expert SA maritime lawyers,” says Kennedy, “it is therefore frugal to use the Short Term Insurance Act No. 53 of 1998 as a barometer.  This is exactly where the insights and expertise of a professional broker that specialises in maritime insurance can prove to be invaluable.  Testing different scenarios and making sure that you have all your bases covered is a task best undertaken with a broker by your side,” concludes Kennedy. 

Subscriber Terms and Conditions

  1. APPLICATION OF TERMS
    • These terms and conditions (“Subscriber Terms”) apply to the subscription by any qualifying member of the South African Underwriting Managers Association NPC (“SAUMA”) to the services and benefits offered by FIA Services (Pty) Ltd (“FIA Services”) under the SAUMA affiliation arrangement (“Subscription”).

  2. NATURE OF SUBSCRIPTION
    • A Subscription under this arrangement:
      • does not constitute membership of FIA NPC;
      • does not confer any voting rights or governance participation in FIA NPC; and
      • is governed solely by the contractual relationship between the Subscriber and FIA Services.

  1. ELIGIBILITY
    • To qualify for the Subscription, the applicant must, at the time of application, be a current paid-up member of SAUMA.
    • FIA Services will verify the applicant’s SAUMA membership status with SAUMA prior to activation, and may re-verify such status periodically.
    • If a Subscriber ceases to be a paid-up member of SAUMA, the Subscription will correspondingly be terminated.
    • Applicants are required to authorise FIA Services to confirm their SAUMA membership status with SAUMA as part of the application process.

  1. SERVICES
    • The Subscription entitles the Subscriber to the following benefits:
      • Complimentary access to the FIA CPD Platform;
      • Complimentary access to the FIA Insight Magazine (digital edition);
      • Advertising opportunities on FIA platforms at a discounted rate of 15% (fifteen percent) off the prevailing published rates; and
      • Invitations to attend FIA Technical Webinars annually.
    • FIA Services reserves the right to update, vary or substitute the Services from time to time, provided that the overall value and nature of the benefits remain materially the same.

  1. FEES AND PAYMENT
    • The monthly subscription fee is R260.00 (two hundred and sixty rand) for up to seven registered individuals (Key Individuals and Representatives), and R36.00 (thirty-six rand) per additional registered individual thereafter, excluding VAT.
    • The Subscriber shall provide FIA Services with the required details of each individual to be registered under the Subscription for the purposes of activation and billing.
    • All fees are exclusive of VAT, which shall be charged at the prevailing statutory rate.
    • Subscription fees are reviewed annually in March and may be adjusted with effect from 1 April.
    • Any changes to the Subscription, including but not limited to the number of Representatives and Key Individuals registered under the Subscription, may only be effected once annually during the annual review period in March of each year, with such changes taking effect from 1 April.
    • Subscription fees shall be billed monthly in arrears, unless the Subscriber elects an annual billing cycle at the time of application.
    • The Subscriber shall ensure that all billing information (including contact details, authorised signatories and bank account details) is kept accurate and up to date.
    • Non-payment of subscription fees may result in suspension of access to the Services until such fees are brought up to date.
    • The Subscriber acknowledges and agrees that all subscription fees payable under these Subscriber Terms may be collected by way of debit order, which shall be processed by the holding company, FIA NPC (The Financial Intermediary Association of South Africa), on behalf of FIA Services. Payment to FIA NPC shall be deemed to constitute valid and sufficient discharge of the Subscriber’s payment obligations to FIA Services under these Subscriber Terms.

  1. ONBOARDING
    • Onboarding will be conducted as a Subscription with FIA Services under the SAUMA affiliation arrangement.
    • Onboarding will not confer FIA NPC membership status or any associated rights.
    • Onboarding is conditional on confirmation of the Subscriber’s current SAUMA membership at the time of application

  1. DATA PROTECTION
    • FIA Services will process all personal information in accordance with the Protection of Personal Information Act 4 of 2013 (POPIA) as set out in our POPIA policies.
    • By subscribing, the Subscriber authorises FIA Services to confirm their SAUMA membership status with SAUMA and to process personal information for the purposes of fulfilling the Subscription.

  1. TERMINATION
    • The Subscriber may terminate the Subscription by giving FIA Services one calendar month’s written notice.
    • FIA Services may terminate the Subscription on one calendar month’s written notice, or immediately if the Subscriber breaches these Subscriber Terms and fails to remedy such breach within 14 (fourteen) days of receiving written notice.
    • Termination of the SAUMA–FIA Services affiliation agreement shall not automatically terminate these Subscriber Terms.
    • Termination by the Subscriber shall not relieve the Subscriber of liability for any subscription fees accrued up to the effective date of termination.
    • FIA Services may suspend or terminate the Subscription with immediate effect in the event of non-payment of fees by the Subscriber.

  1. GENERAL
    • These Subscriber Terms are governed by the laws of the Republic of South Africa.
    • Any disputes arising under these Subscriber Terms shall be dealt with in accordance with the dispute resolution provisions contained in the FIA NPC membership terms and conditions, as modified to reflect that the contractual relationship is with FIA Services.
    • Any notices required under these Subscriber Terms may be validly delivered by email to the addresses provided in the Subscriber’s application form, and such notices shall be deemed received on the day of transmission if sent during business hours.
    • The Subscriber may not assign, cede or transfer any of its rights or obligations under these Subscriber Terms without the prior written consent of FIA Services.
    • No variation of these Subscriber Terms shall be of any force or effect unless reduced to writing and signed by both FIA Services and the Subscriber.