Franchise, Excess Deductibles, and Irrespective of Percentage Clauses in Marine Cargo Insurance

Introduction

The fundamental purpose of insurance is to cover abnormal losses, not ordinary or expected ones. For instance, health insurance is intended to meet the expenses of major illnesses, but not routine outpatient visits. Marine cargo insurance works on the same principle: it protects against unexpected or extraordinary losses in transit, while excluding normal trade losses such as minor weight differences, evaporation, or natural wear and tear.

To achieve this balance, insurers apply specific clauses. The Franchise Clause and the Excess (Deductible) Clause are designed to filter out minor or routine claims and ensure that only significant or abnormal losses are compensated. On the other hand, when insuring high-value or sensitive goods—where even a small scratch or dent can cause substantial financial loss—the insured may require every admissible loss to be covered. In such cases, the Irrespective of Percentage Clause is used.

Together, these clauses define what qualifies as a claim, how much of the loss is compensated, and the conditions under which even small losses become payable. Understanding them is essential for importers, exporters, and logistics professionals.

1. Franchise Clause

Motive
The franchise clause is designed to eliminate trivial claims. It establishes a threshold: below this limit, no claim is payable; once exceeded, the insurer indemnifies the entire admissible loss.

How it Works

• If the loss is less than the specified percentage of the insured value → no claim.
• If the loss exceeds that percentage → the entire loss is payable (not just the excess).

Goods Example
Perishables such as fruits or vegetables, where small losses are frequent and not worth claiming.

Claim Settlement Example

• Insured value: USD 100,000
• Franchise: 5% (USD 5,000)
• Loss of USD 4,000 → Not payable
• Loss of USD 6,500 → Fully payable at USD 6,500

2. Excess (Deductible) Clause

Motive
The deductible ensures the insured bears part of every loss, discouraging very small claims and encouraging prudent handling of goods. Unlike the franchise, the deductible always applies, regardless of the loss amount.

How it Works

• The insurer deducts a fixed amount or percentage from every claim.
• The insured is required to bear this portion of the loss.

Goods Example
Bulk commodities such as rice bran, where a degree of weight loss, dust, or wastage is considered normal. The insurer compensates only for losses beyond this expected margin.

Claim Settlement Example

• Insured value: USD 100,000
• Deductible: 5% (USD 5,000)
• Loss of USD 4,000 → Not payable (loss below deductible)
• Loss of USD 6,500 → Payable = 6,500 – 5,000 = USD 1,500

3. Irrespective of Percentage Clause

Motive
For high-value or sensitive goods, even a small amount of damage can reduce their market value significantly. This clause guarantees that all admissible losses are payable, regardless of their size.

How it Works

• No minimum percentage or deductible applies.
• Even the smallest admissible loss is claimable.

Goods Example
Fragile, high-value items such as cars, where even a small scratch may lower the resale value substantially.

Claim Settlement Example

• Insured value: USD 100,000
• Loss of USD 2,000 → Fully payable
• Loss of USD 15,000 → Fully payable

Comparative Summary

Conclusion

These clauses reflect the balance between insurer and insured interests:

• The Franchise Clause screens out minor claims but pays in full once the threshold is crossed.
• The Excess (Deductible) Clause enforces shared responsibility by reducing each claim and covering only abnormal losses beyond normal wastage.
• The Irrespective of Percentage Clause ensures comprehensive protection for goods where even the smallest damage matters.

For traders and logistics professionals, selecting the right clause is critical. It determines risk exposure, claim recovery, and ultimately the financial protection available. Aligning the insurance wording with the nature of the cargo and the realities of trade helps avoid disputes and ensures coverage meets business needs.