Open cover (floating policy)
A transport insurance contract that automatically covers all of an insured's shipments during a period, each declared through a declaration, rather than insuring each voyage separately.
An exporter or trader shipping goods every week cannot negotiate a policy for each voyage. The open cover, as it is called in the London market, automatically covers all shipments within its scope, goods, routes, means of transport, maximum amount per shipment, for a given period. Each shipment is declared to the insurer through a declaration specifying the cargo, value, vessel or means of transport and route, and the premium is calculated on these declarations according to an agreed rate schedule. The mutual commitment is the key: the insured must declare every shipment within scope, including those that arrive undamaged, and the insurer must accept them all, without being able to refuse a shipment declared after the fact. Omitting a declaration, especially one concerning a shipment that arrived safely, is therefore a serious breach, because it distorts the pooling. Limits per vessel and per storage location protect the insurer against accumulation, and war and strikes clauses are attached with their own cancellation notice.
Hypothetical case: a coffee trader buys a one-year open cover for its seaborne imports, with a 5 million dollar limit per vessel. It declares 48 cargoes during the year; the premium is calculated on each declared value, and the 31st, damaged by seawater, is indemnified without prior negotiation.
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