Final answer:
Under Institute Cargo Clause (B) with a franchise clause, a client is compensated for partial losses caused by perils of the sea only if the loss exceeds a predetermined percentage. If the partial loss is below this threshold, no payment is made. If the loss is above the threshold, the coinsurance principle may apply for settlement.
Step-by-step explanation:
When a client purchases coverage under Institute Cargo Clause (B), and the policy includes a franchise clause for partial losses caused by perils of the sea, the insurer provides coverage for total losses only. In case of a partial loss, the franchise clause stipulates that the client will only be compensated if the damage exceeds a certain percentage of the insured value, often referred to as the franchise amount. If the damage is less than this percentage, no payment is made.
For example, if a cargo policy has a 3% franchise clause, and the insured value of the cargo is $100,000, the threshold for the franchise clause would be $3,000. Partial damage must exceed this amount for the client to be eligible for compensation. If the partial loss is, say, $4,000, the entire loss is payable; however, if the partial loss is $2,500, then the insurer does not pay any part of the loss.
In cases where the partial loss exceeds the franchise amount, the coinsurance principle might come into play, stating that the policyholder pays a percentage of the loss, and the insurance company pays the remaining cost.