Marine Cargo Insurance for Canadian Importers: Costs, Cover and Claims

What to take away

This article is general information for importers, not advice on a specific policy. Wording differs between insurers, so read the policy and ask your broker before you ship.

Why the carrier's liability is not enough

The freight bill does not buy protection for the goods. Part 5 of the Marine Liability Act gives the Hague-Visby Rules the force of law in Canada for contracts of carriage by water between different states. Article IV of those Rules says the carrier is not liable for loss or damage above 666.67 units of account per package or unit, or 2 units of account per kilogram of gross weight, whichever is higher, unless the shipper declared the nature and value of the goods before shipment and the declaration appears in the bill of lading.

Units of account are special drawing rights as defined by the IMF, so the Canadian dollar figure moves with exchange rates and can sit far below the invoice value. The Rules allow a higher value to be declared before shipment, but a declaration only helps if it is made and recorded in the bill of lading. Insurance does not depend on that.

The Government of Canada's Trade Commissioner Service makes the same point for exporters: carriers accept only limited liability, so goods in transit need their own insurance. For an importer, the question is who carries the risk under your purchase terms. The CBSA's valuation memorandum uses CIF, cost of insurance and freight, as an example of a price that already includes insurance, but a buyer on other terms may need to place the cover. Confirm with your supplier and forwarder who insures the goods and from which point.

What the cover includes

The Trade Commissioner Service guide lists three common levels:

"All risk" does not mean every loss. A policy has exclusions and conditions, and the Marine Insurance Act adds rules that apply unless the policy says otherwise. A warranty must be complied with exactly, whether or not it is material to the risk. A voyage policy on goods carries an implied warranty that the ship is seaworthy and reasonably fit to carry the goods at the start of the voyage. Losses are also sorted into total loss, partial loss, general average and salvage charges.

The same guide notes that marine policies also cover connecting land transportation, so ask whether cover runs from the supplier's warehouse to yours, not only from port to port. A cross-border coverage review applies the same logic to goods that cross the border by truck.

What drives the premium

No regulator publishes a rate for cargo cover, so any figure quoted online is somebody's example. What the Marine Insurance Act does tell you is how the quote is built.

An insured must disclose every material circumstance known to them before the contract is concluded. A circumstance is material if it would influence a prudent insurer in fixing the premium or deciding whether to take the risk. Misstating a material fact lets the insurer avoid the contract, since a marine insurance contract is based on utmost good faith.

The value you insure is the other lever. For an unvalued policy, the insurable value of goods is the prime cost of the goods, plus the expenses of and incidental to shipping, plus the charges of insurance. A valued policy instead fixes an agreed value, and absent fraud that value is conclusive between you and the insurer. The Trade Commissioner Service says goods shipped by sea are typically insured at 110 percent of their value to cover replacement costs, but describes that as common practice rather than a rule.

Insurance also touches customs paperwork. CBSA memorandum D13-3-3 defines insurance costs as the cost of insurance covering loss or damage to the goods in transit, and counts them among transportation costs. Transportation costs from the place of direct shipment to Canada are not included in the value for duty, while those to the place of direct shipment must be added to the price paid or payable if not already included. Keep the premium invoice so your broker can separate the figures. The insurance quotes and renewals checklist shows how to compare wording, not only price.

Check before you bind

Ask the broker for these answers in writing:

How a claim runs

Most claims fail on paperwork, not on cover, so the steps matter more than the policy summary.

At delivery. Inspect the container and note damage on the delivery receipt. Under the Hague-Visby Rules, notice of loss or damage and its general nature must be given in writing to the carrier or its agent at the port of discharge before or at the time of removal of the goods. If the damage is not apparent, notice is due within three days. Without notice, removal is prima facie evidence that the carrier delivered the goods as described in the bill of lading. No written notice is needed if the goods were jointly surveyed on receipt.

Tell the insurer promptly. The policy sets its own notice period, so read it. Photographs, the bill of lading, the commercial invoice and any survey report are the usual file.

Total versus partial loss. Under the Marine Insurance Act, a loss is an actual total loss if the goods are destroyed, cease to be a thing of the kind insured or the insured is irretrievably deprived of them. A constructive total loss exists where abandonment is reasonable because actual total loss appears unavoidable or preservation would cost more than the goods are worth, and an insured who abandons must give notice of abandonment with reasonable diligence. A partial loss is any loss that is not a total loss.

General average. The Act defines a general average act as an extraordinary sacrifice or expenditure voluntarily and reasonably incurred in time of peril to preserve the property in a common adventure. Where the goods are fully insured for their contributory value, the measure of indemnity for the contribution is its full amount, subject to any express policy terms.

The carrier's claim. After a total loss payment, the insurer is subrogated to your interest in the goods. Check with the insurer before releasing the carrier, and keep the one-year deadline to sue under the Hague-Visby Rules in mind. It can be extended only if the parties agree after the cause of action has arisen.

The way a loss changes next year's quote is covered in what changes after a claim.

Common questions

Official sources