What Is Container Insurance?
Container insurance (also called container and equipment insurance, or container equipment cover) insures the risks to the container itself and to equipment of container type that is defined in the policy. What the name covers differs by product and wording.
There are three separate subjects, and they are not automatically provided together in one policy: (A) physical loss of or damage to the container itself, (B) physical loss of or damage to the cargo inside the container, and (C) the legal liability of the container's owner, lessor or operator to third parties. Which policy deals with which is determined by reviewing the contracts and the wording.
This page is general information only and does not represent the scope, price, acceptance or any guarantee of payment under a particular policy.
Physical Loss of and Damage to the Container
Equipment cover concerns physical loss of or damage to the container itself. Depending on the policy it may be built on an all risks basis or on named perils; which approach applies must be read from the wording.
- Total loss and partial damage: Loss of the container or damage beyond repair is treated differently from repairable damage. The threshold at which repair cost leads to a constructive total loss (CTL) depends on the wording.
- Insured value: Different bases may be used, such as an agreed value, a depreciated value or the amount stated in the lease; the measure of indemnity varies accordingly.
- General average and salvage: Some wordings cover the container's share of general average and salvage charges; scope and limits depend on the wording.
- Deductibles and limits: Deductibles per container or per event and aggregate limits are set in the policy; some items may sit outside the deductible.
- Stage and location: Scope, territorial limits and location conditions for transit, storage, depot or terminal stages, and whether the container is on lease, depend on the wording.
The same subject may be inside cover in one wording, available by extension or special condition in another, and excluded in a third. For example, an older market clause such as the Institute Container Clauses (Time) of 1987 and the lessor and operator wordings in use today take different approaches to war, strikes and similar perils; none of them alone represents the whole of the current market.
Cargo Inside the Container vs the Equipment
Physical loss of or damage to goods carried inside the container is the subject of marine cargo insurance, not of container insurance. Cargo insurance does not automatically insure the container, and container equipment insurance generally does not cover the cargo inside it, although cover structures can differ and what each policy covers must be verified from the wording. For cargo, see Marine Cargo Insurance.
The distinction continues with reefer (refrigerated) containers: the refrigeration unit and the container itself are equipment, while spoilage of the temperature-controlled product being carried requires a separate assessment and is not the same as container equipment cover (see Temperature-Controlled Cargo Insurance). Tank containers may also be defined as equipment in the policy; the wording determines the cover.
Physical Equipment Cover vs Legal Liability
Physical equipment cover addresses loss in the value of the container itself. Legal liability addresses the obligations of the container's owner, lessor or operator to third parties (for example for damage to another party's property, bodily injury or pollution). These are not the same cover and do not automatically come together.
In some international wordings equipment and liability are set out as separate sections, while some equipment cover products address physical loss and damage only. Whether liability cover exists, whom it protects and its limits must be verified from the relevant wording.
In operator-side structures, matters such as cargo liability arising from defective container equipment may also arise by extension or special condition. The scope of such extensions depends on the wording and on the insurer's acceptance.
The legal basis of a liability (for example tort, contract or statute) and the liability regime that applies depend on the facts and the applicable law; liability may in some cases rest on fault and in others on a no-fault basis, and not every liability cover is tied to fault. Liabilities assumed by contract (for example indemnity obligations in a lease) should not be assumed to be accepted automatically under the policy; some wordings exclude no-fault or contractually extended liability, or require a special condition. Liquidated damages and penalty-type payments should likewise not be treated as automatically covered. Limits, deductibles and exclusions must be verified from the policy.
Who Is It For? Owner, Lessor, Lessee and Operator
- Owner: As owner of the container, bears the economic loss if the equipment is lost; the interest rests on ownership.
- Lessor: The party that leases the container out. The lease may place responsibility for damage while the equipment is on lease on the lessee; which periods the lessor's cover addresses (for example equipment that is off lease) differs by wording and should not be read as a single rule.
- Lessee: As the hirer, may be responsible under the contract for damage to the equipment or for its return; that responsibility may be addressed by its own policy or by the lessor's arrangements. The lessee's status as an insured is not automatic.
- Operator: The party operating or using the container (for example a shipping line, an NVOCC or a freight forwarder) may look for equipment and liability cover for its own or hired containers; status as an insured and the interest depend on the contracts and the wording.
None of these parties, nor a depot or terminal operator, should be treated as automatically insured merely by virtue of its role. The insurable interest is determined by ownership, the lease (leasing) agreement and the liability relationship, and how additional insureds are defined depends on the policy. For a depot or terminal operator's own liability, see Ports & Terminal Operators Liability.
Cover Options and Special Extensions
The following are examples; whether an item is inside cover, possible by extension or special condition, or excluded varies by wording.
- War, strikes and terrorism: In some structures included or available by extension; excluded in some clauses; listed areas and limits may apply.
- Theft: Whether theft is covered, and on what conditions and under which definition, depends on the wording; it is named expressly in some wordings.
- Disposal, quarantine and disinfection costs: In some wordings they appear as a costs item or extension; container cleaning, repositioning, repatriation and loss of rental should not be read as automatic cover.
- Third-party and cargo liability: May be a separate section, an extension or a separate policy; scope depends on the wording.
- Tank and reefer equipment: The definition of equipment, value thresholds and machinery provisions such as the refrigeration unit vary by wording.
- Costs of minimising loss: How reasonable costs incurred to avoid or reduce a loss are treated depends on the policy conditions.
Exclusions, Deductibles and Policy Limits
The following are examples; the list is not exhaustive and each exclusion may have exceptions or conditional cover.
- Wear and tear, corrosion and lack of maintenance: Ordinary wear, rust and inadequate maintenance are excluded in some sample wordings; the cover depends on the wording.
- Mechanical and electrical breakdown: Breakdown and malfunction, design or manufacturing defects are excluded in some wordings; machinery damage is in some clauses tied only to specified accidents or to total loss.
- Mysterious disappearance and inventory shortage: Losses found on stocktaking or that cannot be explained are excluded in some wordings or made subject to proof of the accident.
- Financial causes and intent: The assured's insolvency, failure to pay debts or intentional conduct are among the exclusions in sample wordings.
- Deductibles and value thresholds: A deductible per container or per event may apply; small damage below a stated value may be excluded.
- Lease and change of ownership: Sale of the container, or leasing it to a party that is not insured, may affect the cover.
Comparison with Marine Cargo, FFL and P&I
Scroll the table horizontally to see all columns.
| Container equipment | Marine Cargo | FFL | P&I | |
|---|---|---|---|---|
| Subject | Physical loss of or damage to the container and the equipment defined in the policy; liability may be a separate structure | Physical loss of or damage to goods carried inside the container | A freight forwarder's legal liability to its customers arising from the organisation of carriage | The maritime liabilities of a shipowner or operator to third parties |
| Insured interest | Ownership of the container or the interest recognised by the policy (owner, lessor; lessee and operator depend on the wording) | Interest in the goods (generally the owner, or the buyer/seller depending on the delivery terms) | The freight forwarder | Shipowner, operator or charterer; depends on the policy |
| Nature of cover | Physical equipment damage | Physical damage to goods | Legal liability | Legal liability; does not automatically cover physical damage to the container itself |
These products do not replace one another. For cargo, see Marine Cargo Insurance; for a freight forwarder's liability to its customers, Freight Forwarder Liability; for ship operating liabilities, P&I Insurance.
P&I cover does not automatically indemnify physical damage to the container itself; that depends on the equipment cover and the wording. Some international structures are designed so that equipment and liability cover work together with P&I; that is not true of every structure.
Information Needed for a Quotation and Underwriting
- Number, type and dimensions of containers (reefer, tank, open top, flat rack and so on)
- Age and condition of the containers
- Ownership and leasing structure
- Values per container or for the fleet as a whole
- Areas of use and geographical limits
- Transit, depot and terminal operations
- Claims history
- Maintenance, inspection and repair records
- Lease agreements and liability limits
- Requested deductibles and special extensions
This list is illustrative; the information and documents requested vary by insurer and policy structure and should not be read as a single mandatory standard form for every insurer. Acceptance, requests for further information and terms rest with the relevant insurer.
Frequently Asked Questions
What is container insurance and how does it differ from Marine Cargo?
Are physical damage to a container and liability the same cover?
Which of the container owner, lessor, lessee and operator can be insured?
How are wear and tear, mechanical breakdown, theft and mysterious disappearance treated?
What information is needed for a quotation?
Neolife's Role
Neolife Group can assess the fleet and contract information, explore suitable local insurance and reinsurance solutions, carry out placement work and compare the quotations received. This does not imply the capacity of any particular insurer or reinsurer, acceptance of cover, price or any commitment to pay; these are subject to the rules of the relevant insurer, to legislation and to the policy terms.