Revised cargo insurance terms clarify long-held anomalies

Marine underwriters are now able to offer cargo interests a revised set of cargo insurance terms, following January 1 changes to the Lloyds Institute Cargo Clauses (A). This was a clarification and amendment exercise on the very popular “all risks” section of the clauses which first appeared in January 1982. “For some time,” said Andrew Robinson, maritime legal specialist at lawyers Deneys Reitz and chairman of the Maritime Law Association (MLA), “the joint cargo committee of the cargo clauses working party has been developing a set of revisions. These are designed to deal with various anomalies and practical issues that had come to light during the lifetime of those clauses.” There are eight main changes. The first relates to the “commencement of transit”. Under the 1982 version of the cargo clauses, the goods were only covered once they had left the warehouse or place of storage and were “in transit”. “This left something of an insurance black hole,” Robinson told FTW. “Unless the insured specifically covered loss or damage to the goods occurring during loading or unloading, or could extend the insurance cover of the goods whilst in storage to cover both loading and unloading, these processes were not covered.” The revised clauses, he added, offer a much more sensible alternative. “Goods will be covered from the time they are first moved – in the warehouse or at the place of storage – for the purpose of the immediate loading intoor- onto the carrying vehicle or other conveyance for the commencement of transit.” As for the “storage” clauses, there has also been some confusion over the years over temporary storage and the effect this has on the termination of cover. Temporary storage was to be just that, but there were many instances where cargo interests left the goods for extended periods. But the revised clauses do away with this “cheap storage” option. “This if the assured – or its employees – elect to use any carrying vehicle or other conveyance or any container for storage other than in the ordinary course of transit,” said Robinson. “It is important to note that the termination will take place from the date of election, not from the date of the actual storage.” Among the exclusions of cover in the new clauses are those where loss, damage or expense is caused by insufficiency or unsuitability of packing or preparation of the goods. The revised clauses state that the standard of packing must be such that “the goods will withstand the ordinary incidents of the insured transit”. This effectively restates the “test” that has been applied since the clauses first appeared in 1982. Loss will only be excluded where the packing or preparation is carried out by the assured (or employees) or where the packing or preparation took place prior to the attachment of the insurance. Packing carried out by independent contractors (whether before or after the attachment) will not be excluded. Insolvency has always been a sensitive issue – and the exclusion of loss, damage or expenses caused by insolvency or financial default of the owners, managers, charterers or operators of a vessel has been refined somewhat. It will now only be excluded if the underwriter can show that the assured, at the time of loading the goods on board the vessel, was aware – or should have been aware – that the insolvency or financial default could prevent the normal prosecution of the voyage. “That may be a difficult onus to discharge,” said Robinson. “And it is important to note that this exclusion will not apply to an assured who had bought, or agreed to buy, the goods in good faith under a binding contract of sale.” The unseaworthiness exclusion has also been revised. “The test,” said Robinson, “is whether the vessel or craft was unfit or unseaworthy for the safe carriage of the goods. In order to avoid paying a claim, the underwriter would have to show that the assured was aware of the unseaworthiness or unfitness of the vessel or craft at the time the goods were loaded therein.” In the case of an unfit container, the underwriter will not be liable if the goods were loaded into it prior to the attachment of the insurance, or where the container is vanned by the assured or its employees who were aware of the unfitness at the time of loading. “Again,” said Robinson, “an assured who is the purchaser of goods in good faith and/or a binding contract will not be prevented from recovering in the event that it can be shown that the assured was privy to the unseaworthiness or unfitness of the vessel or craft.” The strikes, lock-outs and terrorism exclusions under the ′82 cargo clauses has now been dramatically extended. “Loss, damage or expense caused by an act of any person acting on behalf of, or in connection with, any organisation which carries out activities directed towards the overthrowing or influencing, by force or violence, of any government whether or not legally constituted, will be excluded,” Robinson said. “Similarly, any loss, damage or expense caused by any person acting from a political, ideological or religious motive will also be excluded. “These very wide definitions will no doubt require those wishing to insure their goods to take out additional insurance to cover acts which fall within these exclusions.” The clauses on “phantom ships” have also been changed. The wording of the 1906 English Marine Insurance Act (MIA) read with the ′82 cargo clauses created a situation where losses arising as a result of cargo being loaded on board “phantom ships” were not covered. “But,” said Robinson, “the revised clauses now state that where the insurance has attached – and without the knowledge of the assured or its employees – the ship then sails for another destination, the insurance will be deemed to have attached at the commencement of transit.” The last of the major revisions is where the destination is changed by the assured. “The assured must notify its insurers promptly so that new rates and terms can be agreed,” said Robinson. “If a loss occurs prior to the parties reaching agreement, then the goods will be covered – but only if cover would have been available at a reasonable commercial market rate on reasonable market terms.”