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What is the importance of “Limit of Liability” under “Marine Open Cover” to cargo insurance?

“Marine Open Cover”, is an agreement between the insured and the insurance company. Under the agreement, the insured agrees to buy cargo insurance for all their cargoes whenever they have an obligation to insure and the insurer agrees to provide cargo protection for the insured at any time.

"Limit of Liability” is one of the agreed conditions under “Marine Open Cover” whereby the insured agrees that it is the maximum sum insured of the total value of the insured shipment(s) (usually applied to any one conveyance or any one location). This is an important condition for the insured as this “Limit of Liability” means that the insurance company is only liable for the shipment(s) for a sum not exceeded by this agreed limit.

If it becomes apparent that the actual shipment value may exceed the agreed limit, the insured must inform the insurance company immediately prior to transition and look for the insurer’s acceptance. If the insured fails to obtain acceptance from the insurer prior to the commencement of the voyage, and if a claim arises, this breach of condition may prejudice the insured’s right of compensation from the insurer.

Customers should declare their cargo value accurately and also to periodically review whether the agreed Limit of Liability is sufficient or not. If there is growth in business, resulting in the total value always exceeding the limit, it is important for the insured to always inform the insurance company in these circumstances and to ask for an increase in the limit to ensure the insured is always fully protected under their cargo policy.

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