Insuring Cargoes A practical guide to the law and practice First Edition 2010 ISBN 978 1 905331 95 6 © Witherby Seamanship International Ltd. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Notice of Terms of Use All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers. While the advice given in this book (Insuring Cargoes, A practical guide to the law and practice) has been developed using the best information currently available, it is intended purely as guidance to be used at the user’s own risk. Witherby Seamanship International accepts no responsibility for the accuracy of any information or advice given in the document or any omission from the document or for any consequence whatsoever resulting directly or indirectly from compliance with or adoption of guidance contained in the document even if caused by failure to exercise reasonable care. This publication has been prepared to deal with the subject of Insuring Cargoes. This should not however, be taken to mean that this publication deals comprehensively with all of the issues that will need to be addressed or even, where a particular issue is addressed, that this publication sets out the only definitive view for all situations. Printed and bound in Great Britain by Bell & Bain Ltd, Glasgow Published in 2010 by Witherby Insurance 4 Dunlop Square, Livingston Edinburgh, EH54 8SB Scotland, UK Tel No: +44(0)1506 463 227 Fax No: +44(0)1506 468 999 Email: info@emailws.com www.witherbyinsurance.com iv ABOUT THE AUTHOR KS Vishwanath, MA(Econ) is an underwriter and adjuster of international repute. Starting his career in 1981, he has been part of the senior management teams of multinational insurance companies in India, including a period heading the underwriting & technical department of a Royal SunAlliance group company in India. He also worked for many years with a French Insurance company (now part of Groupama), based out of Hong Kong. Vish has been invited to speak on insurance in a number of countries at prestigious forums and many of his articles have appeared in international journals. He now works as a freelancer, offering consultancy on all classes of insurance business, including risk management. v FOREWORD Many technical works on marine cargo insurance concentrate on the London market and clauses and court cases relating to risks placed in London. However, KS Vishwanath (Vish) has produced a book that is global in its content, with detailed comment and discussion on clauses not just from London, but also from Norway, France, the USA and other countries. Whilst the London clauses form the framework for much of this book, refreshingly his international underwriting experience has enabled Vish to produce a reference work that draws upon issues and examples from many insurance regimes. London has been in the forefront of the development of internationally adopted cargo insurance clauses, from the time of the introduction of the first market cargo clauses in 1912 through to the revised clauses of 2009 and beyond. In recent years, I have been very fortunate to have been close to some of the major technical changes in the London market, one of the aims of these changes being to enable the London clauses to be more acceptable to insurers worldwide. However, the clauses and conditions of other markets and legal regimes cannot and should not be ignored. Vish is not afraid to ask questions or to put forward ideas to open debates to which there may be several answers, making this a stimulating way in which to approach a technical subject. There may be some practitioners who will disagree with Vish’s suggestions in some of his more subjective points, but that does not detract from the book’s value. This book goes well beyond a simple description of the clauses. It contains cases that are relevant to the points being made, with many references to case law, as well as in depth information on particular cargoes and the perils they face. Wordings and coverage outside standard printed clauses, such as the Institute Cargo Clauses, are discussed and the coverage they provide reviewed. This will be of great use to insurance practitioners, wherever they may be located. With many direct cargo placements being underwritten in markets other than London, the rise of other international markets, such as Singapore, and the generalisation of wordings, opportunities for cargo practitioners to learn from their own experience become fewer. There are other reference works that give more detailed information on specific cargoes; this book also gives guidance as to how insuring problems may be resolved. The practical explanation of cases provides a very useful guide to students of cargo insurance, at whatever stage of their career they may be, as well as thoughtful information on shipping terms, including Incoterms. In addition to being a valuable source of technical information, this book gives a good insight into the development of coverage and clauses in markets other than London. This is also a useful guide to the differences which have evolved between various clauses in various regimes. Mark Wibberley Executive Director, International Trade & Logistics, Marine Division Willis Limited Chairman of the Cargo Sub-Committee of the London and International Insurance Brokers’ Association (LIIBA) vi PREFACE There are a number of classics on marine insurance, such as those authored by RH.Brown, Arnould, Templeman and Goodacre, and I don’t think any bookshelf can be complete without these scholarly works occupying a pride of place. I wrote this book to discuss the principles of marine cargo insurance, with comments on how practitioners transact business in actual practice. In this book, I have attempted to track modern trends and show how some of the principles enshrined in the Marine Insurance Act 1906 of UK have undergone changes at the market place. For instance, most of the underwriters’ and brokers’ (manuscript) wordings were developed to address the challenges encountered while transacting marine business according to the traditional rules of the game. This book also tries to capture practices in markets other than the UK and the US, particularly the rich traditions of the Norwegian market which is made possible by the brilliant commentary provided by ‘The Central Union of Marine Underwriters’ (CEFOR), Oslo, Norway. I must express my gratitude to Astrid Seltmann and Vigoo Kristensen of CEFOR for their kind permission to quote from CEFOR commentary. I must also thank Björn Kupfer of German Insurance Association for his permission to reproduce some of the German clauses, Neil Smith of Lloyd’s Market Association, John Dunt for their kind permission to quote from their commentaries on the new Institute Cargo Clauses and Jonathan Dobinson of Australian Law Reform Commission, Sydney, for permission to quote from their report suggesting reforms that was tabled before the Australian parliament. I would like to record my grateful thanks to the following gentlemen without whose assistance the book would not have seen the light of day; the late Michael Mann (a surveyor of international repute), Alan Jervis (Marine and Transport Insurance expert and mediator, Canada), Mark Lloyds (Partner, Walton Morse, London), Mike Rodericks (Partner, Clyde & Co, London), and Thomas J.Lynch, CPCU, SLA, AMIM (Director of Claims & Recoveries, CSL, North America). I owe a special word of thanks to Jonathan Spencer, Average Adjuster in the US, who introduced me to Tom. I would like to thank Mark Wibberley of Willis and Neil.A.Pettitt of Marsh (both of them were more than willing to provide any clarification that I required despite being very busy practitioners). Mark also took time off his busy schedule to review the book as a third party expert and writing a forward to the book. I must also express my gratitude to my erstwhile colleagues from Royal SunAlliance in the UK and Groupama in France. I regret I am unable to name them individually. There are a number of experts whom I have contacted, over the years, for a clarification on some point or the other, and their inputs were invaluable to me. Willum Richards (formerly of R&SA), Paul Sansom of W.E.Cox, Singapore, David Landau and Jai Sharma of Dolphin Maritime & Aviation Services, Neville Gough, author & consultant in the UK, Prof Jan Ranberg of Sweden (an internationally acclaimed expert on Incoterms), Nick Owen, Nicholas Gooding , Prof Baris Soyer, Prof Rhidian Thomas, Prof Howard Bennett, Leena Modi , Average Adjuster with J.B.Boda, Mumbai, Andrew P Joannou of W.K. Webster & Co Ltd, Michael Biltoo of Walton Morse, Keith Sturges, Senior Claims Manager of Lloyd’s Agency Department, Christine Gaul, Artmann Thomas and Kratz- vii Dunkel Tillmann of Munich Re, Natasha Brown of International Maritime Organisation (IMO), and my dear friend Sagarnil Gupta, (who was always around to assist whenever I wanted any sort of information on marine!). Others I would like to acknowledge are Mike Wall (Kiwi Marine Consultants, Hong Kong who provided some of the sketches for Chapters 13 & 14), A Sparks (author of Carriage of Steel by Sea), Christian Braans (Surveyor and author based in Antwerp), Don Oliver of DS Oliver & Company (Cape) Pty Ltd, Claremont in South Africa, David Boffey (Carmichael & Clarke, Hong Kong), Wieger Hamer & Ivar Bol ( J.Hamer & H.van Hussen of Rotterdam), Siddharth Amin of Dr. Amin Superintendents, Dr Ing Yves Wild (Hamburg), Mayank Chauhan, Masplantiz Technologies, Enrico Gandolfo of Levosil, Italy, Ketan Premani of Sud-Chemie, Erick Del Aguila of SalvageSale Ltd, Kent, Alison Potts of Chartered Insurance Institute, London, Frank J. Sioli, CPCU, ARM of USI Insurance Services of Florida, Arthur Flitner of CPCU, C.Maheshwar (author of Container Refrigeration), Aashish Sehgal of Dynagas Ltd. Annabelle Smythe of Willis, James E. Mercante of Rubin, Fiorella & Friedman LLP of New York (thanks to Stuart Shillibeer, Director, W K Webster (Overseas) who introduced me to him!), Neeraj Tuli &Trinath Tadakamalla of Tuli & Co, New Delhi (associated with Kennedys of London, an international law firm) and Tristan Miller & Michael Harvey of Harvey Ashby Limited. I was fortunate in joining the corporate office of National Insurance Company in 1981, which gave me the exposure to complex claims and underwriting issues very early in my career. During this time I also came into contact with the late V.K.Bhandari of J.B.Boda and Tony Fernandez, Average Adjuster, both of whom have been a source of inspiration to me. I must thank the publishers, particularly to Iain Macneil for his support. I was lucky that Iain asked Kat Heathcote to be in charge of my book. The Open Book symbol, which you will find in this book, was her idea to improve the flow of the book and to add a personal touch the text! I owe a special thanks to Kat and her team, since they had to cope with the constant changes to text I kept making till the very last moment. I must also thank my wife Raji and daughter Sanju who had to put up with papers strewn all over the living room during the entire book project! This book has been designed to be useful to a wide spectrum of professionals in the transportation business, including underwriters, claims adjusters, brokers, forwarders, surveyors, law firms, shipowners, P&I clubs and cargo owners. I trust you will enjoy reading this book as much as I did writing it. As a student of marine insurance, I have been keeping notes of interesting information gleaned from various sources but often without recording the source of such information! While I have acknowledged every single source/person in this book for any assistance I have received, if you find anything in this book which ought to have been acknowledged, do bring such instances to my notice so that I can make amends in the next edition of the book. Your feedback would be gratefully received. I would also like to be constantly in touch with my readers who are willing to share their experience. I have read somewhere that know-why’s are more important than know how’s. This book is the result of this questioning spirit. KS Vishwanath Email: marinebook@gmail.com ix CONTENTS ABOUT THE AUTHOR IV FOREWORD V PREFACE VI ACKNOWLEDGEMENTS VIII 1 MARINE INSURANCE AND INTERNATIONAL TRADE 1 1.1 The Need for Marine Cargo Insurance 3 1.1.1 Responsibility for Arranging Insurance 3 1.1.2 Restrictive Legislation 3 1.1.3 Trade Sanctions 4 1.2 Cargo Classification 5 1.2.1 Cargo Families 5 1.2.2 Examples of Major Commodities 5 1.2.3 Dangerous Goods 18 1.3 The Container Revolution 18 1.3.1 Types of Container 20 1.3.2 Mechanism of Containerisation 20 1.3.3 Impact on Marine Insurance 21 1.3.4 Containerisation and Terms of Sale 22 1.4 Vessels and Classification 23 1.4.1 Types of Vessel 23 1.4.2 Classification 23 1.4.3 Protection & Indemnity Clubs 24 1.4.4 The ISM Code 27 1.4.5 The ISPS Code 27 1.4.6 Vessel Selection 28 1.5 Financing of International Trade 28 1.5.1 Documentary Credit 28 1.5.2 Documentary Collection 29 2 BASIC PRINCIPLES OF MARINE CARGO INSURANCE 31 2.1 The Assured 33 2.1.1 Identification of an Assured 33 2.1.2 Norwegian Market 36 2.1.3 Position of a Buyer Holding an Assigned Certificate 37 2.1.4 Assignor and Assignee Relationship 40 2.1.5 Multiple Assureds 41 2.2 Indemnity 41 2.3 Agreed Value – A Detailed Discussion 43 2.3.1 Binding Nature of Agreed Valuation 43 x 2.3.2 Multi-party Transactions and Agreed Valuation 45 2.3.3 Effect of Agreed Valuation on Total and Partial Loss Claims 47 2.3.4 Corollary to the Principle of Indemnity 50 2.3.5 Circumstances where Indemnity Exceeds Sum Insured 57 2.3.6 Payment of Interest on Claims 59 2.4 Utmost Good Faith and Disclosure 59 3 CURRENT TRENDS IN DETERMINING DEPRECIATION 63 3.1 Increasing Use of Salvage Loss Method Rather than PAM 65 3.2 Are Instances of Salvage Sales Decreasing? 67 3.3 Other Methods of Determining Depreciation 68 3.3.1 Commodity-Specific Methods of Computation 72 3.4 Practice in Other Markets 74 3.4.1 Antwerp Market 74 3.4.2 Norwegian Market Regulations 74 3.5 Manuscript Wordings Currently in Vogue and their Impact on Indemnity 75 3.6 Other Modification to MIA 1906 Provisions 77 3.6.1 Brand Protection Clauses 77 3.6.2 Institute Replacement Clause 83 3.6.3 Pair and Set Clause 88 3.6.4 Cutting Clause 89 3.6.5 Debris Removal Clause 91 3.7 Other Commonly Used Clauses 93 3.7.1 Fumigation Clause 93 3.7.2 Peak Value Clause 95 3.7.3 Automatic Increased Value Clause 95 4 INSURABLE INTEREST 97 4.1 General Introduction 99 4.2 Assignment of Interest and Policy 101 4.3 Incoterms (International Commercial Terms) 104 4.3.1 Shipment and Destination Terms 105 4.3.2 Mode of Carriage and Incoterms 106 4.3.3 Marine Cargo Insurance and Incoterms 106 4.3.4 Incoterms in Practice – Some Practical Difficulties 114 4.4 The Risk vs Title Dichotomy 120 4.5 Modern Trends in UK and US markets 120 4.5.1 When the Assured is the Buyer 121 4.5.2 When the Assured is the Seller 122 4.5.3 Legal Validity of Warehouse to Warehouse Cover Irrespective of the Terms of Sale 123 4.6 CIF Term and Nature of the Insurance Policy 130 4.7 For Whom it May Concern 132 4.8 Banks and Marine Insurance 136 5 CONTINGENT INSURABLE INTEREST 141 5.1 The Origin of Seller’s Interest Cover 143 5.1.1 Reasons for Rejection of Documents 144 xi 5.2 Key Features of Seller’s Interest Covers 144 5.2.1 Assessment of Exposure 144 5.2.2 Seller’s Interest and Documentary Credit System 147 5.2.3 When does Cover Incept Under a Seller’s Interest Policy? 147 5.2.4 Cause of Rejection of Documents/Goods by the Buyer 152 5.2.5 MIA 1906 Requirement of Insurable Interest on Date of Loss 153 5.2.6 Additional Clauses in Seller’s Interest 153 5.3 Summary 154 5.4 Buyer’s Interest and Difference in Conditions 155 5.5 Specimen Wordings 156 6 MARINE OPEN COVER 165 6.1 Open Cover 167 6.1.1 Advantages of an Open Cover 167 6.1.2 Features of an Open Cover 167 6.1.3 Limit of Liability 171 6.1.4 Declaration (bordereau) 177 6.2 Limits of Liability 180 6.2.1 What is a Location? 181 6.2.2 Is Location Meant for Land Based Accumulation or Onboard Vessels or Both? 183 6.2.3 Does the Location Clause Refer to Port of Loading or Port of Discharge or any Port or Place During a Voyage? 185 6.2.4 Location Limit and Overseas Buyers 186 6.2.5 Do the Limits Apply to Each Party Mentioned as Assured? 186 6.2.6 Loading and Unloading Clause and Location Limit 186 6.2.7 Limits of Liability and Condition of Average 187 6.2.8 200% Accumulation Clause 189 6.3 Example of Limits per Bottom and Location Operating 194 6.4 Certificate System Under an Open Cover 195 6.4.1 Web Based Certificate Generation 199 6.5 Annual Sales Turnover Policies 199 6.5.1 How are Premiums Computed? 200 6.5.2 Annual Policies – A Critique 201 6.6 Stock Throughput Policies 201 6.6.1 Advantages of a Stock Throughput Policy 201 6.6.2 A Diagrammatic Illustration of a Stock Throughput Policy 203 6.6.3 Challenges in Administering Stock Throughput Covers 205 6.6.4 Process Clause in Stock Throughput Covers 206 6.6.5 Standard Exclusions in a Stock Throughput Policy 207 7 INSURING TERMS - 1, INSTITUTE CARGO CLAUSES (A), 1.1.82 209 7.1 MAR Policy Form 211 7.2 Institute Cargo Clauses (A) 1982 211 7.2.1 Risks Covered 211 7.2.2 Exclusions 214 7.3 Duration of cover 228 7.3.1 Leaving the Warehouse 229 xii 7.3.2 Ordinary Course of Transit 235 7.3.3 Termination of Cover 238 7.4 Termination of Transit – Some Further Issues 241 7.4.1 Limits of a Port Town 241 7.4.2 60 Days - Counting of 242 7.4.3 Discharge ‘Overside’ 242 7.4.4 Delivery of Whole Consignment or Each Portion Thereof? 242 7.4.5 Delivery to a Consignee’s Warehouse, but Under Bond 244 7.4.6 Return of Goods for Repair 244 7.5 Other Clauses of the ICC (A) 249 7.6 Piracy 260 8 INSURING TERMS - 2, THE NEW INSTITUTE CARGO CLAUSES - A, CL. 382, 1.1.09 267 8.1 General Changes 269 8.1.1 Removal of Side Headings 269 8.1.2 Contract (Open Cover) and Cover Provided by ICC 269 8.1.3 Modernising the Language 270 8.1.4 Defining Assured 270 8.1.5 Major Changes 271 8.2 Institute Cargo Clauses 2009 - A Detailed Analysis 271 8.2.1 Risks Covered 271 8.2.2 Exclusions 272 8.3 Duration of Cover 285 8.4 Other Clauses 295 9 INSURING TERMS 3 - FROZEN FOOD CLAUSES 301 9.1 Temperature Controlled Cargoes 303 9.2 Underwriting Considerations 303 9.3 Temperature Recording Devices 305 9.4 Institute Frozen Food Clauses 309 9.4.1 Institute Clauses 309 9.4.2 Institute Clauses Amended to Include Chilled and/or Cooled 314 9.4.3 Extension Clauses 315 9.4.4 Manuscript Wordings 316 9.4.5 Warranties 320 9.5 Frozen Food Clauses, Some Issues 322 9.6 Frozen Foods and Perishables Claims 325 10 OTHER INSTITUTE CLAUSES AND ENDORSEMENTS 329 10.1 Institute Cargo Clauses – (B) and (C) 331 10.1.1 ICC (B) and (C) - 1982 and 2009 Versions 331 10.2 (B) and (C) Causation 331 10.3 (B) and (C) Exclusions 333 10.4 Comparison of ICC (B) with Extended Transport Accident - B Clauses of Norwegian Market 334 10.5 Institute Classification Clause 341 xiii 10.6 Radioactive Contamination Clause 345 10.6.1 Institute Radioactive Contamination Clause, CL 356, 1.10.90 346 10.6.2 Amendment to RACE - Extended RACE Clause 346 10.6.3 Further Amendment – Introduction of Clause 370 346 10.7 Termination of Transit (Terrorism) JC2001/056 348 10.8 ISM Endorsements 349 10.8.1 ISM Code and Marine Cargo Insurance 350 10.8.2 Compliance with ISM – Some Further Explanation 352 10.9 ISPS Endorsements 355 10.9.1 The International Ship and Port Facility Security (ISPS) Code 355 10.9.2 ISPS Endorsements of JCC 356 10.9.3 ISPS – Implication for Cargo Owners 356 11 CONSTRUCTION OF A POLICY AND EXTRANEOUS PERILS 357 11.1 Rules for Underwriting 359 11.2 Some Manuscript Wordings 359 11.2.1 Deck Cargoes 359 11.3 Rules of Construction 362 11.3.1 Rules of Construction 363 11.3.2 Contra Proferentem 363 11.4 Rules of Proximation 365 11.4.1 What is Proximate Cause? 365 11.4.2 Phraseology of Institute Cargo Clauses 366 11.4.3 Concurrent Causation 366 11.5 Burden of Proof 368 11.5.1 Manuscript Clauses 369 11.6 Need for Careful Drafting of Policies 369 11.6.1 Mechanical, Electrical and/or Electronic Derangement (MEED) Clause 369 11.6.2 Rust, Oxidation, Discolouration and/or Corrosion 371 11.6.3 Country Damage 372 11.6.4 Shortage Risks 374 11.7 Extraneous Perils 375 11.7.1 What are Extraneous Perils? 375 11.7.2 Interpretation of Extraneous Perils 376 11.7.3 Non-Delivery 381 11.8 Deductibles 383 11.8.1 Expression of a Deductible 383 11.8.2 Each and Every Loss 384 11.8.3 Major Casualty, Sue and Labour, Salvage Charges and General Average 384 11.8.4 Meaning of ‘Each’ and ‘Whole’ in ‘Each and Whole Shipment Value’ 384 11.8.5 Deductible and ‘Ordinary Loss’ 385 11.8.6 A Series of Losses Detected After a Time 386 11.8.7 Deductible Contrasted with a Co-Insurance Clause 387 11.8.9 Co-Mingling Warranty, Multiple B/Ls Covered Under Separate Certificates Issued off Open Covers 388 11.9 Warranties 390 xiv 12 PHYSICAL LOSS OR DAMAGE TO CARGO 393 12.1 Changing Trends 395 12.1.1 ‘Fear of Loss’ as Opposed to ‘Physical’ Loss 397 12.2 Widening of Cover 400 12.2.1 Control of Damaged Goods 400 12.3 Manufacturer’s Guarantee or Warranty 407 12.3.1 Does the Policy Valuation Include the Warranty? 407 12.3.2 Does the Policy Valuation Exclude the Warranty? 408 12.3.3 Possible Solutions 409 12.3.4 Examples of Satisfactory Resolution of Claims 411 12.3.5 The French Marine Cargo Insurance Policy 414 12.3.6 The Norwegian Marine Cargo Insurance Policy 414 12.4 Guaranteed Outturn Covers 414 12.4.1 Recovery of Shortage/Leakage under ICC (A) Terms 416 12.4.2 Recovery of Shortage/Leakage under ICC (A) Including “Leakage/Shortage Howsoever Caused or Arising” 417 12.4.3 Example of Re-Adjustment of Claim Under ICC (A) Terms 418 12.4.4 Guaranteed Outturn Cover 419 12.5 Packing 420 12.5.1 Is Packing Material Part of the Subject-Matter Insured? 421 12.5.2 Damage to Packing Material Leading to Rejection of the Goods 425 12.5.3 Packing Exclusion Clause in Institute Cargo Clauses 426 12.6 Treatment of Delay in Marine Insurance Policies 426 12.6.1 French Cargo Conditions 428 12.6.2 German Cargo Conditions 428 12.6.3 Norwegian Cargo Conditions 428 12.6.4 Russian Cargo Conditions 429 12.6.5 Swiss Cargo Conditions 429 12.6.6 Wider Covers Including Delay 429 13 PHYSICAL LOSS OR DAMAGE TO CARGO - OTHER CLAIMS ISSUES 431 13.1 Concealed Damage or Delayed Discovery of Loss 433 13.2 Shortage from ‘Seal Intact’ Containers 434 13.2.1 Fraudulent Bill of Lading Clause 438 13.3 Sweat Damage 439 13.3.1 Cause of Sweat 440 13.3.2 Is Sweat Damage Covered in ICC (A)? 441 13.3.3 Pattern of Wetness and Cause of Loss 443 13.3.4 Sweat/Condensation in Norwegian Cargo Clauses 445 13.4 Odour Claims 445 13.5 Vermin Damage 446 13.6 Pollution Hazard Clause 447 13.7 General Average (GA) 449 13.7.1 Definition 449 13.7.2 Elements of the GA Act 449 13.7.3 Distinction between General Average (GA) and Particular Average (PA) 449 xv 13.7.4 Contributory Values 449 13.7.5 GA and Cargo Insurance 450 13.7.6 Examples of GA 450 13.7.7 GA Security 451 13.8 Salvage 456 13.9 Nature of LOF (and other forms of Salvage) - Liability Under Clause 2 or 16 of ICC? 457 13.10 Exchange Rates in Marine Cargo Insurance 464 13.10.1 Exchange Rate for Claims Calculation 464 14 CARGO LOSS PREVENTION - INCLUDING SOME CURRENT TRENDS 467 14.1 Loss/Damage from Container Shipments 470 14.1.1 Principal Causes of Loss 470 14.1.2 Loss Prevention Steps for Container Movements 472 14.1.3 Loss Prevention: Moisture/Condensation/Sweat 476 14.1.4 Some Case Studies 477 14.1.5 Origin of Sweat 482 14.2 Damage Detection Devices 485 14.3 Dry Bulk Cargoes 488 14.3.1 Principal Causes of Loss 488 14.4 Project Cargo 493 14.5 Difficult Destination 496 ANNEXES 499 INDEX 531 158 8. All rights and bene?ts of any actions which the seller may possess or acquire against the buyer and/or carrier(s) and/or other persons are to be subrogated to the Company. 9. This contingent interest insurance is not assignable. Version Three This insurance is to cover the interest of the Assured as seller of goods in respect of those consignments sold on Free On Board, Free Alongside, Cost and Freight, Free Carrier, Carriage Paid To or similar terms, but excluding sales made through con?rming houses or similar organisations and where payment is received prior to the commencement of transit. This insurance attaches from the time the goods leave the warehouse or place of storage at the place named in the policy for the commencement of the transit and terminates when the goods are paid for by the buyer. During this transit, this insurance is subject to the standard marine policy form incorporating cover against perils as per contract wording and Institute SR&CC Clauses. Thereafter, cover re-attaches retrospective to the commencement of the transit with the addition of the risks of war as per Institute War Clauses for one or more of the following contingencies. 1. The buyer fails or refuses to accept the shipping documents 2. The buyer fails or refuses to accept the goods 3. The buyer cancels the contract prior to arrival of the shipments at the ?nal warehouse 4. The Assured exercises a lien on the goods, or interrupts their transit or suspends the sale contract while the goods are in transit, when this is reasonable to safeguard his interests. If it is necessary to return the consignment, it will be covered under the Return Merchandise Clause of this policy. (Other terms are similar to standard Seller’s Interest clauses mentioned above.) The above clause is interesting as it makes a mention of confirming houses. However the paragraph “During this transit, this insurance ….” does not seem to do reflect the intention of the draftsman correctly. The following seems a restricted cover, where risk is not retrospective. Version Four This policy extends to cover the Assured’s Contingent Financial Interest in goods which would be covered hereunder, where the Assured has no responsibility to insure under the Terms of Sale/Purchase or where the cover provided is more restrictive than that afforded under this Policy. 159 Where interest in the goods reverts to the Assured for any reason during transit, such goods shall be covered continuously during any reasonable period whilst awaiting resale or return including any additional transit resultant upon such resale or return. (The rest of the clause is fairly standard.) There are manuscript wordings in the American market called the ‘Unpaid Vendor’s clause’ and the ‘Guarantee of Collectability clause’. While the general wording of the Unpaid Vendor and Seller’s Interest clauses may differ, the intent appears to the same, ie to protect an innocent assured (the seller) against non-payment in the event of a loss or damage to goods as a result of an insured peril that would, other than for the terms of sale, be covered under the assured’s open cover. It appears as though the difference is in the title rather than the effect. However, there seems to be one key difference between the two wordings. Unlike the Seller’s Interest clause, an Unpaid Vendor’s clause would respond to short payment in case the buyer accepts the documents/goods, but pays only for the sound portion of the cargo. The Guarantee of Collectability clause tends to be used more for buyer’s interest cover in that it steps in if the buyer (the assured) has difficulties in collecting a recoverable claim from the insurers in a CIF purchase. Unpaid Vendor’s Clause In respect of shipments which are sold by the Assured on terms other than Cost Insurance Freight, this Insurance shall be extended, subject to declaration of values and payment of premium thereon if required, to cover the interest of the Assured as Unpaid Vendor until payment, but in no event beyond the time when Insurers’ risk would normally cease under the terms of this insurance. Unpaid Vendor’s Clause Regarding shipments sold by the Assured on terms whereby ocean marine insurance is not included, this policy is extended, subject to its terms and conditions, to cover only the Assured’s contingent interest as an unpaid vendor, on conditions as provided below. This extension attaches from the time the shipment becomes at the risk of the buyer under terms of sale until full payment in accordance with the terms of sale, but in no event beyond the time when this company’s risk would normally cease under the terms of this policy. Shipments insured under this cover will be valued in accordance with the valuation clause of this policy for goods sold, or if there is nothing speci?ed for goods sold, at the Assured’s selling price as per the contract of sale. 160 It is understood and agreed that in no event shall this insurance inure to the bene?t of the buyer or his insurers, but if a loss occurs which would be collectable hereunder but for such terms of sale and the Assured is unable to collect the purchase price from the buyer in regular course, this company will advance the amount of such loss pending collection from the buyer; such advance will be made as a loan without interest refundable only in the amount collected from the buyer or from his insurers; the Assured hereby agreeing to use all reasonable means to collect the full amount due from the buyer and to reimburse this company, the latter sharing the expenses of such collection in proportion to its interest herein. Additional premium, if required, as detailed on the con?rmation on the Con?rmation of Marine Insurance endorsed hereon. Buyer’s Interest Clauses (incorporating Difference in Conditions) Notwithstanding the responsibilities of the Seller on interest purchased FOB/CFR/FCA/FAS (or any other similar terms of sale whereby the Seller is responsible for part or all of the transit risks within the country of origin) the Assured has the right to hereby insure the interest from the interior at the place of origin as though the purchase was ex works subject to the terms and conditions of this policy. However, the Assured only has the right to claim hereunder providing that: a) He has suffered a pecuniary loss b) he has taken all reasonable steps to invoke the contract of sale and the responsibilities thereunder and has attempted to recover from the Seller and/or Seller’s Insurers any pecuniary loss which he has suffered by reason of loss or damage to the subject-matter from a peril insured against during the currency of the policy c) he has not divulged the existence of this insurance to the Seller or the Seller’s Insurers. If, by reason of this extension, the Insurers are called upon to pay a claim, the Assured subrogates all his rights and remedies to the Insurers who have the right to sue or proceed in any way against the Seller or the Seller’s Insurers, either in their own name or the name of the Assured. This extension does not cover pecuniary loss by reason of Exchange Control Regulations which apply in the country of the Seller or any other country en route to the port/place of loading. In respect of interest purchased by the Assured on CIF or similar terms where the Seller is responsible for effecting insurance. This insurance is to indemnify the Assured in respect of and to the extent of claims which they fail to recover from the insurance effected by the Seller, following loss or damage which would be recoverable under the conditions of this contract applicable to similar interest bought or sold on terms where the Assured is responsible for effecting insurance. The existence of this insurance is not to be disclosed to any third party. All rights and bene?ts against the seller and/or seller’s insurance and/or carriers and/or others are to be subrogated to insurers. Any assignment of this policy or of any interest or claim hereunder shall discharge insurers from all liability. 280 JC93 Endorsement It is hereby agreed that the exclusion “loss damage or expense arising from insolvency or ?nancial default of the owners, managers, charterers or operators of the vessel” is amended to read as follows: In no case shall this insurance cover loss, damage or expense arising from insolvency or ?nancial default of the owners, managers, charterers or operators of the vessel where the Assured are unable to show that, prior to the loading of the subject-matter insured on board the vessel, all reasonable practicable and prudent measures were taken by the Assured, their servants and agents to establish the ?nancial reliability of the party in default”. This endorsement was also criticised by legal practitioners, for the following reasons: 1. Use of ‘arising from’ instead of ‘caused by’. Some commentators have said that ‘arising from’ is wider than ‘proximately caused by’ and could, therefore, take the assured by surprise, even when there was a maritime casualty leading to a loss to the cargo. As an example, a shipment may be damaged by fire at an intermediary port. The claim may be repudiated if the vessel had abandoned the cargo at such a port following insolvency of the shipowners 2. The position of an innocent assignee. For example, a buyer of goods on CIF basis may find his claim prejudiced since the seller did not apply due diligence in selecting a vessel. Brokers therefore preferred to use the 4.6 wording of the Institute Commodity Trade Clauses instead, as this contained a specific amelioration for the assignee 3. This endorsement includes the assured and their servants, as well as the agents, which was very onerous indeed from the assured’s point of view. For example, a ship broker engaged by an assured to book or charter a vessel may be considered an agent. The 2009 edition of the ICC adopts the Institute Commodity Clauses exclusion instead of JC93 to reflect modern underwriting practice. The key changes are: • ‘Caused by’ instead of the earlier ‘arising from’ • the assured should have been aware (or in the ordinary course of business should be aware) about the insolvency or default at the time of loading on board the vessel, that such insolvency could prevent the normal prosecution of the voyage. There is now no reference to employees/servants or agents • this exclusion does not apply to the assignee who has bought goods under a binding contract. The meaning of binding contract is explained in Chapter 10 • unlike JC93, the burden will be on the insurer to prove that the assured himself was privy to insolvency etc at the time of loading.9 The German market wordings reflect the same approach by not penalising an assured who has exercised due diligence, or those who have no control over the choice of transport operators owing to the nature of the term of sale. 9 Chapter 2 discussed in detail who is considered an ‘assured’. 281 DTV Cargo Insurance Conditions 2000, as amended July 2004 2.4 Perils not covered Clause 2.4.16 “insolvency or ?nancial default of the shipowner, charterer or operator, or in respect of any other ?nancial dispute involving the above parties, unless: – the Insured can prove that he exercised the diligence of a prudent businessman in choosing the above parties or the responsible forwarding agent; – the Insured or Assured is the buyer and, under the terms of the sales contract, had no control over the choice of persons involved in the transport of the goods.” The German clauses, interestingly, make a special mention of the terms of sale. It was mentioned previously that in some terms of sale it is the buyer who selects a vessel (eg FOB), while, in some others, it is the duty of the seller to nominate a vessel (eg CFR or CIF). Once a vessel owner or charterer declares insolvency and abandons the voyage or it is clear that the voyage cannot be continued due to financial difficulties of the owner or charterer, the insurer would almost always expect the assured (shippers and/or consignees) to take charge of the situation (under the guidance of insurance companies) since they (as parties to the contract of carriage) are in a much better position than the insurer to resolve all the issues arising from such situations. Once the insurer steps in, it is believed that the owners and charterers would be less reasonable in coming to an agreement. Furthermore, the insurer will require time to study the situation and collect documentation and information before being able to conclude that, in terms of the insurance contract (including the terms of the 4.3 exclusion clause), they are liable under the policy. During the 1980s, I had occasion to handle a number of claims under exclusion 4.6. Most of the problems of cargo owners were resolved by encouraging them to form an association of all receivers and taking joint action against the shipowner or charterer under legal advice. As AJ Birch, average adjuster, once wrote: “If insurers were to adopt a relatively high profile or controlling stance, the deterrent effect would be removed and the tendency would be for cargo owners and shipowners/charterers to assume insurers were accepting liability in principle at the outset and the costs of resolving the problems would be likely to be less ‘reasonable’”. Old Clause 4.7 loss damage or expense arising from the use of any weapon of war employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. New Clause 4.7 Loss damage or expense directly or indirectly caused by or arising from the use of any weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or radioactive force or matter. The nuclear weapons exclusion was introduced in the 1982 revision of the Institute Cargo Clauses. Later, the Institute Radioactive Contamination, Chemical, Biological, Bio-Chemical and Electromagnetic Weapons Exclusion Clause, 10.11.2003, was introduced and that superseded 4.7. The RACE clause is a paramount clause and contains a wider provision for causation by using the expression ‘directly or indirectly’.