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.”