Freight insurance
Insurance of the freight charge when it is payable only on delivery, protecting the shipowner against losing its remuneration if the cargo does not arrive, distinct from cargo and hull insurance.
Freight is the price of sea transport. Depending on the contract, it may be earned by the carrier upon loading, whatever happens next, or be due only on delivery of the goods at destination. In the second case, called freight at risk, loss of the cargo en route deprives the shipowner or charterer of its remuneration, although it has incurred the voyage costs. Freight insurance covers this risk: it indemnifies loss of freight when the goods are not delivered due to an insured peril. It differs from hull insurance, which protects the vessel, and cargo insurance, which protects the goods and belongs to the shipper or consignee. When freight is prepaid and earned regardless, the risk passes to the shipper, which then includes it in the insured value of its goods. The division among these three interests, ship, cargo, freight, is ancient, and it explains the structure of general average, which shares sacrifices made among the same interests. For the underwriter, freight insurance follows the risk of the voyage, but its amount depends on the commercial terms of the charter.
Hypothetical case: a shipowner carries a grain cargo with 1.5 million dollars of freight payable on delivery. A fire on board destroys the cargo halfway: the charterer owes nothing, and freight insurance indemnifies the shipowner for the lost remuneration, while the grain owner is indemnified by its cargo insurer.
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