(insurance) An insurance contract (policy) which remains in force until cancelled and under which individual successive shipments are reported or declared and automatically covered on or after the inception date. The open policy saves time and expense for all concerned, whether underwriter, agent or assured.
The shipper gains many advantages from the use of an open policy.
(1) He or she has automatic protection (up to the maximum limits stated in the policy) from the time shipments leave the warehouse at the place named in the policy for the commencement of transit. The policyholder warrants that shipments will be declared as soon as practicable, but unintentional failure to report will not void the insurance, since the goods are “held covered,” subject to policy conditions. In effect, this is errors and omissions coverage, and it forestalls the possibility that, because of the press of business, goods may commence transit without being insured.
(2) The open policy provides a convenient way to report shipments. It also relieves the shipper from the necessity of arranging individual placings of insurance for each shipment.
(3) Under an open policy the shipper has prior knowledge of the rate of premium that will be charged and thus can be certain of the cost. This in turn facilitates his quoting a landed sales price.
(4) The use of the open policy creates a business relationship that may exist over a long period of time. This permits the insurer to learn the special requirements of its assureds and so to provide them with individualized protection, tailor-made to fit the specific situation. This may be an important factor in the case of loss adjustments at out-of-the-way ports around the world, or in overcoming problems peculiar to a given commodity.
Some letter of credit transactions require evidence of an individual “policy” covering the specified shipment. In such cases it has become the practice to use a special marine policy. See bordereau; declaration; special marine policy.