MARINE · 6 MIN READ
Ocean Cargo: Institute Clauses, FPA, and War Risks
Ocean cargo coverage is built around the Institute Cargo Clauses. ICC (A) is all-risks; ICC (B) and (C) are named-perils tiers. A critical drafting difference: (B) and (C) contain a deliberate-damage exclusion (clause 4.7) barring loss from deliberate damage or destruction by the wrongful act of any person, while (A) omits it - so third-party malicious damage is covered under (A) but excluded under (B) or (C) unless the Institute Malicious Damage Clause endorsement is attached. All three tiers exclude war risks (war, civil war, mines, torpedoes) and require a separate Institute War Clauses (Cargo) endorsement, purchasable at additional premium and cancellable on short notice - usually seven days - during hostilities. Strikes, riots, and civil commotion (SRCC) likewise need their own clauses. All tiers also exclude inherent vice: loss from the natural properties of the goods themselves, like bananas rotting on a normal voyage with proper temperatures - there is no fortuitous external peril, so there is no coverage. The American FPA (Free of Particular Average) tradition parallels ICC (C). Particular average means an accidental partial loss falling on one interest. FPA - American Conditions covers total loss but pays partial loss only when caused by the vessel being stranded, sunk, burnt, or in collision - the SSBC perils. Older forms carry a Memorandum or franchise: partial losses below a stated percentage (say 3 percent for grain) are not paid at all, but if an SSBC peril breaks the franchise the full loss is paid with nothing subtracted - the key difference between a franchise and a deductible. Attachment and duration come from the warehouse-to-warehouse clause: coverage runs from the moment goods leave the origin warehouse, through inland and ocean transit including reasonable delays, until delivery at the destination warehouse. Volume shippers use an Open Cargo Policy that attaches automatically and continuously to every declared shipment, with certificates of insurance issued per shipment and a Currency Clause paying claims in the invoice currency at a defined exchange date to preserve true indemnity. Under Incoterms 2020, only CIF and CIP obligate the seller to buy cargo insurance for the buyer: CIF at minimum ICC (C), CIP upgraded to ICC (A).
Key rules
ICC (A) is all-risks; (B) and (C) are named perils with a deliberate-damage exclusion.
Clause 4.7 of (B) and (C) excludes deliberate third-party damage, which (A) covers; the Institute Malicious Damage Clause endorsement restores it on the cheaper tiers.
Why the exam cares: Vandalized-container scenarios test whether you know which tier covers deliberate damage and how to buy it back.
War and strikes risks are excluded from every ICC tier and must be bought separately.
Institute War Clauses (Cargo) and strikes clauses attach by endorsement at extra premium, and war cover is cancellable on short notice - typically seven days - during hostilities.
Why the exam cares: A mine or war-weapon loss under plain ICC (A) is a favorite question - the answer is not covered without the separate war endorsement.
FPA-American pays partial losses only for stranded, sunk, burnt, or collision perils.
Total loss is covered regardless of covered-peril cause, but particular average is paid only when an SSBC casualty occurs; FPA roughly equates to ICC (C).
Why the exam cares: The SSBC mnemonic is the tested key to FPA questions and to franchise-breaking analysis.
A franchise is all-or-nothing: below it nothing is paid, once breached the full loss is paid.
Unlike a deductible, a Memorandum franchise (for example 3 percent on grain) is not subtracted from recovery; a 2.5 percent storm loss with no SSBC event pays zero.
Why the exam cares: Numeric questions give a loss percentage just under the franchise and test whether you pay nothing rather than the excess.
Warehouse-to-warehouse coverage runs door to door, including reasonable delays.
Cover attaches when goods leave the origin warehouse and ends on delivery at the destination warehouse, spanning inland legs on both ends of the ocean voyage.
Why the exam cares: Distractors limit cargo cover to the port-to-port leg; the tested rule is full transit coverage.
Numbers to memorize
- 7 days — typical short-notice cancellation period for war-risk cargo cover during hostilities
- 3% — example Memorandum franchise on grain: partial losses below it pay nothing unless an SSBC peril occurs
- SSBC — stranded, sunk, burnt, collision: the perils that unlock partial-loss payment under FPA
- CIF = ICC (C) minimum; CIP = ICC (A) — seller's required insurance levels under Incoterms 2020
Common traps
- Confusing a franchise with a deductible — remember a breached franchise pays the full loss with nothing subtracted, and an unbreached franchise pays nothing at all.
- Assuming all-risks ICC (A) covers war perils — remember mines, torpedoes, and war losses are excluded in every tier and need the separate Institute War Clauses.
- Expecting ICC (B) to pay for vandalism — remember the clause 4.7 deliberate-damage exclusion applies to (B) and (C) unless the Malicious Damage endorsement is attached.
- Blaming the carrier's voyage for inherent vice — remember rot, fermentation, and natural decay are excluded because the loss would have occurred without any external fortuity.
Read cargo questions peril-first: identify the cause of loss, then walk down from (A) to (C) asking at which tier that peril drops out or is excluded.
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