The Intersection of Trade Terms and Transit Coverage
In the insurance landscape, the term "Marine Insurance" often causes confusion for those moving goods exclusively by land. However, under regulatory frameworks and standard market practice, Marine Cargo Insurance is the primary instrument used to cover Inland Transit (road and rail). The foundational pillar of these policies is the principle of Insurable Interest. You cannot simply buy insurance for any cargo; you must demonstrate that you would suffer a financial loss if the goods were damaged or destroyed.
The alignment between your commercial invoice and your insurance policy is not just a matter of "best practice", it is a legal necessity. If your contract specifies an Incoterm where the risk has already passed to the buyer, but you (the seller) continue to pay for insurance, the insurer may legally deny a claim because you no longer held a stake in the goods at the time of the accident. Conversely, if you assume the risk but forget to activate a "declaration" under your Open Policy, you are staring at a total loss.
Essential Incoterms for Road Transport
While there are 11 Incoterms in the 2026 revision, only seven are "multimodal," meaning they are suitable for road transport. The four maritime-only terms (FOB, CIF, FAS, CFR) are strictly for port-to-port sea transit and should be avoided for road-only movements to prevent legal ambiguity during claims.
- EXW (Ex Works): The buyer assumes all risk from the moment goods are made available at the seller’s warehouse. The buyer's marine insurance must trigger the moment the goods are touched for loading.
- FCA (Free Carrier): This is the "modern" version of EXW and is highly recommended for road transit. Risk transfers when the seller delivers goods to a carrier nominated by the buyer at a named place.
- CPT (Carriage Paid To): The seller pays for the freight to the destination, but, crucially, the risk transfers to the buyer as soon as the goods are handed to the first carrier.
- CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller is obligated to procure insurance for the buyer. This is one of the only terms that mandates insurance.
- DAP (Delivered at Place): The seller bears all risks and costs until the vehicle arrives at the destination, ready for unloading.
- DPU (Delivered at Place Unloaded): This replaced the old DAT (Delivered at Terminal). The seller’s risk continues until the goods are physically moved off the truck at the destination.
- DDP (Delivered Duty Paid): The seller handles everything, including taxes and clearance, bearing risk until the goods reach the buyer's doorstep.
The transition of risk acts as a "legal handshake" between buyer and seller, determining exactly whose insurance policy must respond to a highway mishap.
Comparative Risk and Insurance Obligations
The following table outlines the allocation of responsibilities for the most common road-based terms used in marine insurance to ensure your logistics and accounts departments are on the same page:
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Incoterm
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Who Arranges Road Transport?
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Where Does Risk Transfer?
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Who is Responsible for Insurance?
|
|
EXW
|
Buyer
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Seller’s Premises (Warehouse)
|
Buyer
|
|
FCA
|
Buyer
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Named Place/Carrier
|
Buyer
|
|
CPT
|
Seller
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First Carrier (at Loading)
|
Buyer
|
|
CIP
|
Seller
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First Carrier (at Loading)
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Seller (for Buyer's benefit)
|
|
DAP
|
Seller
|
Destination (on truck)
|
Seller
|
|
DPU
|
Seller
|
Destination (physically unloaded)
|
Seller
|
|
DDP
|
Seller
|
Destination (on truck)
|
Seller
|
Critical Considerations for Marine Cargo Policies
When insuring goods for road transit, simply knowing the Incoterm is only half the battle. You must ensure the policy wording reflects the operational reality of the journey. Below are the critical areas where trade terms and insurance clauses collide.
1. The CIP Insurance Standard Upgrade
The 2026 update continues the stringent insurance requirement for CIP. The seller is mandated to provide Institute Cargo Clauses (A) or "All Risks" cover. For road transit, this means the policy must cover:
- Fire, explosion, and lightning.
- Overturning, jackknifing, or derailment of the land conveyance.
- Theft, pilferage, and non-delivery (TPND).
- Collision with external objects or animals.
- Damage during loading and unloading (if specifically endorsed).
2. The Loading and Unloading Gap
A common error occurs during the "first and last mile." For instance, under DAP, the seller is responsible for the goods until they are ready for unloading. If a crate falls while being moved from the truck bed to the warehouse floor, the risk has technically already shifted to the buyer. If the buyer’s insurance only triggers "once the goods are in the warehouse," this creates a "no-man's land" where neither policy may respond. It is vital to add a "Loading and Unloading" clause to your Marine Open Policy to close this gap.
3. Subrogation and Carrier Liability
Under regulatory guidelines, including the Carriage by Road Act, the liability of a common carrier is often limited to a specific amount per kilogram or package. If you use a private carrier or your own fleet, insurers typically apply a "Standard Fire and Special Perils" approach or may apply a penalty (usually 25%) if your contract with the carrier prevents the insurer from recovering the loss from them (Subrogation).
- Verification: Always ensure your transporter provides a valid Consignment Note (LR/GR).
- Recovery: A clean LR/GR is essential for a claim; any "Subject to Check" remarks can jeopardize your insurance payout.
Risk Management and Underwriting Accuracy
To maintain a 100% accurate insurance profile, businesses must look beyond the premium and focus on the "Warranties" and "Conditions" attached to the policy. Road transit involves unique hazards compared to sea or air, specifically road conditions, driver fatigue, and hijacking risks.
Packaging Warranties
Every marine insurance policy contains an implied or express warranty that the goods must be "suitably packed" to withstand the ordinary rigors of the journey. For road transport, this means:
- Protection against vibration and jolts.
- Waterproofing (tarpaulins are often not enough; shrink-wrapping is preferred).
- Proper lashing and securing within the truck to prevent shifting during sudden braking.
If an investigator finds that a loss occurred because of flimsy cardboard or inadequate lashing, the insurer has the right to void the claim, regardless of the Incoterm used.
The Role of "Intermediate Storage"
Road journeys are rarely direct. Trucks stop at transshipment hubs, warehouses, or for driver rest. Standard Marine Cargo policies cover "Transit." If the goods stay in a warehouse for more than 7-30 days (depending on the policy) for the convenience of the buyer or seller, the "transit" is considered broken. At this point, the Marine Policy stops, and a Fire/Property Policy must take over. Under DPU or DDP, where the seller might be managing a destination warehouse, this distinction is critical.
Compliance and Claims: The Regulatory Framework
Adhering to IRDAI (Insurance Regulatory and Development Authority) standards is non-negotiable for valid claims. The regulator emphasizes transparency and the "Duty of Disclosure."
- Basis of Valuation: Most road transit policies follow an "Invoice Value + Freight + 10%" formula to cover incidental expenses. Under DDP, ensure the valuation includes the duties and taxes already paid, as these are part of your "insurable interest."
- Declaration Frequency: For those holding an Open Policy, declarations must be made consistently. If you only declare the "high-risk" trips and hide the "low-risk" ones, you are in breach of the principle of Utmost Good Faith (Uberrimae Fidei).
- Route Deviation: The policy covers the "customary route." If a driver takes a 200km detour to avoid a toll or visit home and an accident occurs, the insurer may argue that the risk was materially changed, leading to a claim rejection.
Conclusion: Securing Your Supply Chain
By aligning your Incoterms with a robust Marine Cargo policy, you create a safety net that protects your working capital. Whether you are a seller operating under DAP or a buyer taking control under FCA, the clarity of the "risk transfer point" is your strongest defense against financial loss. Ensure your documentation, from the commercial invoice to the Lorry Receipt, reflects the same terms to ensure a seamless claims process.
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