Cargo insurance: why the insurer denies the claim

Most importers find out what their policy actually covers at the worst possible moment — when the cargo is already damaged. Until then the contract sits signed and unread, because it runs to thirty pages, half of them in fine print.

We recorded a conversation with Dmytro Zhemaldinov, an insurance broker at Solid Insurance who handles claims settlement every day. Below is the essence of it: what insurers pay for, what they don’t, and what to do in the first hours after something happens to your cargo.

The full conversation with Dmytro Zhemaldinov, insurance broker at Solid Insurance

Why insure cargo at all if “it usually arrives fine”

This is the most common objection, and it holds up exactly until the first incident. According to Dmytro, basic cover works steadily despite the war and the constant reshuffling of supply chains:

You can insure anything. The market works the way it always worked. Despite the extra risks that come with supply chains changing all the time, it still works. Any equipment, any cargo — we have insured even weapons against basic risks, and we can insure them.

The problem is not that the risks are exotic. They are everyday:

• someone drops a pallet during transhipment;
• a forklift punctures the packaging;
• the container turns out to be leaky and the cargo takes on moisture during a storm;
• customs officers unload and reload the truck the way that suits them, not the way it was packed.

The last one is not a hypothesis. It is a real case from our practice.

Three real cases that show the mechanics

Brake discs on top of electronics

A groupage shipment of car parts arrives at a client. The boxes are damaged. The reason: during a customs inspection the cargo was unloaded and reloaded, with a pallet of heavy brake discs placed on top of boxes of electrical appliances.

Formally the responsibility here is ours: the driver is our hire, the supply chain is ours. But is this an insured event?

The insurance contract has an exclusion called “incorrect placement, securing or packing of the cargo inside the vehicle”. If the insurer wants to be very particular, they can send their adjuster to look at how the cargo was placed — and that can be grounds for denial. But in practice such cases are usually handled reasonably. There have been times when customs officers climbed into the trailer themselves and walked over the cargo. There is nothing you can do about that.

Frozen strawberries that arrived thawed

The refrigeration unit failed. And here comes a figure most people do not know:

World statistics say that every tenth container with a reefer unit is in a faulty condition. Either already broken, or about to break.

What to do if you open a reefer and see thawed goods:

• Stop. Do not hand the container over to a carrier who will take it back to the port.
• Take the temperature recorder readings — it logs the temperature along the whole journey.
• Notify the agent and the insurer immediately.
• Order an inspection from a specialised company. Not a general surveyor: in Ukraine there are one or two companies that are official service centres for reefer equipment and are authorised to establish mechanical and electrical damage to the container.

If the container is unloaded and driven away, the insurer will not have enough evidence that there was only a temperature difference. So: stop completely, hand the container to no one, call the service centre.

It is precisely by skipping these steps that the myth is born that “reefer insurance doesn’t work”.

The container of new electric cars that fell in port

Route Shanghai — Gdańsk, transhipment port Wilhelmshaven in Germany. During transhipment the line dropped the container. It fell to the ground with new electric cars inside.

It was our first shipment of electric cars and we had no experience. So when it came to packing we asked the agent to do it as well as possible. He said it would cost an extra $240 per container. We paid.

After the fall the container was critically damaged. The cars — not a single scratch. The surveyor checked the running gear and the bodies: no damage.

The risk of damage during loading, transhipment and unloading is a standard part of cover. And, according to Dmytro, one of the most frequent items under which claims arise. But there is a nuance:

It is very important to make sure these risks are written into your insurance certificate. This is the moment when the insurer sends over the policy and writes “please check, confirm and sign”. And you go: “yes, fine, confirmed”. That is where the gaps happen.

What insurers deny claims for: the main exclusions

The wording in the contract looks reassuring: “with liability for all risks”. Then comes a reference to the clause with the exclusions, and there are about fifty of them.

The event is not covered

The most typical one is war risks. They are always an exclusion in the basic contract and are bought separately. If cargo is damaged by a missile strike and war risks were not insured separately, the claim will be denied.

Condensation and mould

Buckwheat from Kazakhstan arrived recently, slightly under condensation and slightly mouldy. What was the problem? The shipper did not add silica gel to absorb the moisture. And the cargo travelled for over 30 days across two ferry crossings, with constant temperature swings.

Condensation is not covered, because it shows the cargo was not properly prepared for carriage. That is the shipper’s responsibility.

Intervention by state authorities

If customs detained the cargo, did not release it or confiscated it, that is a basic exclusion.

Negligence of personnel

The exclusion exists, but negligence is hard to prove and is usually settled through the courts. An example from the conversation: a tractor unit with a container weighing about 40 tonnes in total drives over a bridge rated for 20. The bridge collapses.

Mysterious disappearance of cargo

The distinction here is fundamental, and it is where people get lost most often.

Theft is when there are traces of entry into the cargo compartment or the packaging. Something is cut, broken, torn, part of the cargo is missing. It is recorded by the police. This is an insured risk.

Mysterious disappearance is when 20 tonnes were loaded at the shipper and 19 arrived. The seals are intact, the container is intact, the packaging is intact. There is simply a tonne missing.

That counts as mysterious disappearance. Most likely it is fraud. The insurance company will say straight away: even if it goes to court, we will not prove theft, it will be a fraud charge. And under Ukrainian law insurers cannot compensate for fraudulent acts.

A separate case is the disappearance of the vehicle together with the cargo. If the carrier never existed as a legal entity, that is fraud and there will be no compensation. If the company did exist, and it was the driver with the truck who vanished, and months later the vehicle was found abandoned — such a case is already potentially insured, because theft can be proven in court.

The mechanics here are the same as in schemes with Chinese suppliers: fraud and theft are different charges, and the consequences for your money are different.

CIF: why “the supplier insured it” does not mean you are protected

Many importers buy on CIF terms and assume the cargo has full cover. It does not.

Under CIF the supplier is obliged to insure your cargo, but with cover that starts with the letter C — that is, the minimum. They can insure ICC (C) to cut costs. I sometimes notice Chinese suppliers insuring cargo worth $50,000 for $30.

And the second question, which comes up only after the damage: how exactly will a Chinese insurance company pay you the indemnity, in what currency and under what procedure.

What to do in the first hours after damage

The most common mistake is to first “close the issue” on your own and only then approach the insurer. The right sequence:

• Notify the insurer or broker immediately.
• Record the damage in photos and video.
• Make the relevant notes in the CMR, the bill of lading or other transport documents.
• Preserve the cargo, the packaging and all the documents.
• Do not dispose of or repair damaged property without the insurer’s agreement.
• Take reasonable steps to stop the loss from growing.

The fifth point is the most underrated. If the goods were disposed of and the claim filed afterwards, the insurer had no chance to inspect the cargo — and that is grounds for denial in itself.

An insurance company or an insurance broker

A question Dmytro explains through an analogy that logisticians understand:

It is the same question as “why would I, an importer, go to a freight forwarder when there is the shipping line”. An insurance broker has more tools. They work not with one insurance company but with several, and each has its own available pool of instruments.

A practical example: you have worked with one insurer for five years, you have a flow of cargo through Ukrainian ports, and your company simply does not want to insure war risks. Then you have to run around the market looking yourself.

There is also a less obvious aspect — the insurer’s attitude:

If you came in through a broker, the attitude towards you will be completely different. If you came directly, you are new business to the insurer. It is easier for them to lose one small direct client than a broker.

A broker’s services are free for the client — the insurance company pays them.

Market context: what has changed in four years

Over the past four years the insurance market has gone from 150 insurance companies to around 57.

The reason is the war and the closure of risky lines. The consequence for business is twofold: the choice of insurers narrows, while the number of brokers grows, because managers and executives from companies that left the market move into broking.

And a forecast worth building into the budget:

Be ready for insurance never to be a very cheap option again. Risks are growing all over the world — global warming, wars, the Strait of Hormuz. Losses are growing for the global reinsurers, and when their losses grow they raise reinsurance rates. Ukrainian insurers all buy reinsurance, so it always shows up in the tariffs.

The main thing

An insurance policy is a document, not a guarantee. Its terms should be checked not against a feeling of calm, but against what actually matters for your cargo: the route, the temperature regime, transhipment, storage, war risks.

Nobody likes reading fine print. But it is exactly there that hundreds of thousands of dollars are sometimes buried — and occasionally the whole business.

Planning a shipment and want the cover to actually work? Write to us — we’ll look at your route and your policy together. If you ship in containers or by reefer, the insurance has to match the way the cargo actually travels.