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Cargo Cover – Abnormal delay


Jagan - June 28, 2019 - 1 comment

  1. Our last article on Salvage & General Average – Security Issues did not touch on the possible implications to an insured cargo interest arising from the delay (if you recall, Yantian Express continued to remain at Freeport, Bahamas for approximately 3 months as security was not provided by some cargo interests). Accordingly, we are focusing on this aspect and whether this would impact cover available under the Institute Cargo Clauses 1/1/20091 (“ICC”).
  2. The ICC consist of three covers, A, B and C and which are for
    1. A cover which is also known as “All Risks”2: The assured would need to show that the loss was caused by a risk and that this positive cover is not overridden by any of the exclusions provided in the policy.
    2. B and C cover and which are meant to cover “Named Perils” 3&4: The assured would need to show that the loss was caused by one of the perils listed in the policy and that this positive cover is not overridden by any of the exclusions provided in the policy. With respect to General Average and Salvage, all the three forms have similar cover as stated in Clause 25.
  3. The Institute Cargo Clauses (A, B & C) expressly provide for English Law and Practice6. Hence, the various sections of the UK Marine Insurance Act 1906 (“MIA”) would apply unless  expressly agreed otherwise.
    1. S 487of the MIA deals with voyage policies (cargo policies are voyage policies) and requires that the voyage be prosecuted with reasonable dispatch failing which the Insurers are discharged from liability from the time the delay becomes unreasonable.
    2. S 888of the MIA provides for the basis of what is and is not reasonable.
    3. S 499of the MIA provides for the excuses for delay.

      On the basis of these sections of the MIA, it is submitted that the extra-ordinary stoppage would be considered as unreasonable such that cargo insurers would be entitled to deny cover for any losses occurring during the extra-ordinary delay.
  4. However, given that the MIA provides for parties to agree otherwise except for the mandatory provision i.e.“unless otherwise agreed” , we would need to consider the relevant clauses in the ICC wordings to ascertain whether they override the provisions of the MIA.
    1. Clause 810 present in all of the three forms of the ICC wordings is known as the Transit Clause.
      1. Clause 8.1 provides for cover “during the ordinary course of transit and terminates either …” (words underlined by us for emphasis).The question which therefore arises is whether the stoppage by Owners or by Salvors (as they are entitled to a maritime lien on the property salved and which (property) will not be removed until security has been provided) will be considered “during the ordinary course of transit”. While a temporary stoppage will not interrupt the transit, it is submitted that a stoppage of 3 months such as in the case of The Yantian Express may indeed not to be in the ordinary course of transit11. Accordingly, the issue would be whether the extra-ordinary stoppages such as in the Yantian Express may result in the cargo cover terminating during the stoppage.
      2. Cl 8 of ICC also provides for the termini in 8.1 to 8.4.  In particular, Cl 8.3 provides for the cover to be in place during delay beyond the control of the Assured. As this abnormal delay would invariably be outside the control of the cargo interests, on this basis it is submitted that the policy would continue respond even during the extra-ordinary stoppage.
    2. Cl 1812 of the ICC known as the Avoidance of Delay Clause and provides for the Assured to take all measures within his control to avoid delay. However, in cases such as the Yantian Express, the insured cargo interests would have no control over the delay and accordingly, it is submitted that this clause would not apply. 
  5. In the case of the Yantian Express, the insured cargo interests are an innocent victim of circumstances. Additionally, considering the costs involved, it may not make commercial sense for them to initiate action either for delivery or to pursue for recovery during the extra-ordinary stoppage. In any event, if the cargo interests do initiate action to recover the cargo and continue with the voyage, these costs would be recoverable under Cl 12 of the Institute Cargo Clauses – Forwarding Charges13. Hence, the cargo insurers are no worse off by the extra-ordinary stoppage. We therefore see no reason why cargo insurers should deny cover particularly when their insured may not have the requisite resources to deal with such issues.
  6. Even if we argue otherwise (we do not believe that this will be sustainable and that cargo insurers will consider doing so), given that the cargo insurers have provided security (Average Guarantee’s), they are or should be aware of the extra-ordinary stoppage. Accordingly, the onus would be on them (cargo insurers) to expressly state as to whether cover continues to be in place or not (in which case, they could seek an additional premium for continuing the cover should they have a valid reason to deny cover).
  7. To conclude,
    1. The Institute Cargo Clauses 1/1/2009 should continue to respond during the extra-ordinary stoppages such as the one in Yantian Express. However, in order to avoid any potential issues, it would be best for cargo interests to notify their insurers of any such delays.
    2. Cargo interests and their insurers should consider working with other interested parties to resolve issues which may arise during the voyage.

 

  1. The previous wordings were 1/1/82 and the 1/1/2009 wordings are an updated version. While there are some changes in the wordings in 1/1/2009, in respect to the above article, the effect would be similar under the 1/1/82. A comparison of the clauses can be downloaded at www.gia.org.sg/pdfs/Calendar/ICC_Revision_Seminar_010409.ppt 
  2. Clause 1 of ICC A 1/1/2009 states “This insurance covers all risks of loss of or damage to the subject- matter insured except as excluded by the provisions of Clauses 4, 5 6 and 7 below”.
  3. Clause 1 of ICC B 1/1/2009 states “This insurance covers, except as excluded by the provisions of Clauses 4, 5, 6 and 7 below,
    1.1 loss of or damage to the subject-matter insured reasonably attributable to 1.1.1  fire or explosion
    1.1.2  vessel or craft being stranded grounded sunk or capsized
    1.1.3  overturning or derailment of land conveyance
    1.1.4  collision or contact of vessel craft or conveyance with any external object other than water
    1.1.5  discharge of cargo at a port of distress
    1.1.6  earthquake volcanic eruption or lightning,
    loss of or damage to the subject-matter insured caused by
    1.2.1  general average sacrifice
    1.2.2  jettison or washing overboard
    1.2.3  entry of sea lake or river water into vessel craft hold conveyance container or place of storage, total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft
    ”.
  4. Clause 1 of ICC C 1/1/2009 states “This insurance covers, except as excluded by the provisions of Clauses 4, 5, 6 and 7 below,
    1 loss of or damage to the subject-matter insured reasonably attributable to
    1.1.1 fire or explosion
    1.1.2 vessel or craft being stranded grounded sunk or capsized
    1.1.3 overturning or derailment of land conveyance
    1.1.4 collision or contact of vessel craft or conveyance with any external object other than water
    1.1.5 discharge of cargo at a port of distress,
    1.2  loss of or damage to the subject-matter insured caused by
    1.2.1  general average sacrifice
    1.2.2  jettison”.
  5. Clause 2 of all the three ICC forms states “This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below”.
  6. Clause 19 of all the three ICC forms states “This insurance is subject to English law and practice.”
  7. S 48 of the UK Marine Insurance Act 1906 states “In the case of a voyage policy, the adventure insured must be prosecuted throughout its course with reasonable despatch, and, if without lawful excuse it is not so prosecuted, the insurer is discharged from liability as from the time when the delay becomes unreasonable.”
  8. S 88 of the UK Marine Insurance Act 1906 states “Where by this Act any reference is made to reasonable time, reasonable premium, or reasonable diligence, the question what is reasonable is a question of fact.”
  9. S 49 of UK Marine Insurance Act 1906 states “Excuses for deviation or delay.
    (1)Deviation or delay in prosecuting the voyage contemplated by the policy is excused—
    (a)Where authorised by any special term in the policy; or
    (b)Where caused by circumstances beyond the control of the master and his employer; or
    (c)Where reasonably necessary in order to comply with an express or implied warranty; or
    (d)Where reasonably necessary for the safety of the ship or subject-matter insured; or
    (e)For the purpose of saving human life, or aiding a ship in distress where human life may be in danger; or
    (f)Where reasonably necessary for the purpose of obtaining medical or surgical aid for any person on board the ship; or
    (g)Where caused by the barratrous conduct of the master or crew, if barratry be one of the perils insured against.
    (2)When the cause excusing the deviation or delay ceases to operate, the ship must resume her course, and prosecute her voyage, with reasonable dispatch.”
  10. S 8.of Institute Cargo Clauses 1/1/2009 states
    “ 8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit, continues during the ordinary course of transit and terminates either 8.1.1  on completion of unloading from the carrying vehicle or other conveyance in or at the final warehouse or place of storage at the destination named in the contract of insurance,
    1.2  on completion of unloading from the carrying vehicle or other conveyance in or at any other warehouse or place of storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution, or
    8.1.3  when the Assured or their employees elect to use any carrying vehicle or other conveyance or any container for storage other than in the ordinary course of transit or
    8.1.4  on the expiry of 60 days after completion of discharge overside of the subject-matter insured from the oversea vessel at the final port of discharge,
    whichever shall first occur
    8.2 If, after discharge overside from the oversea vessel at the final port of discharge, but prior to termination of this insurance, the subject- matter insured is to be forwarded to a destination other than that to which it is insured, this insurance, whilst remaining subject to termination as provided in Clauses 8.1.1 to 8.1.4, shall not extend beyond the time the subject-matter insured is first moved for the purpose of the commencement of transit to such other destination.
    8.3 This insurance shall remain in force(subject to termination as provided for in Clauses 8.1.1 to 8.1.4 above and to the provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation, forced discharge, reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to carriers under the contract of carriage”.
  11. See Pearson v The Commercial Union Co Ltd(1876) 1 App Cas 498 where Lord Penzance held that “ It is well understood that the desire and object of an assured is that the policy shall extend to all such risks as may arise by the venture or operation being carried out in the usual or ordinary manner, and the general words of the policy are intended to be construed so as to conform to the usual and ordinary method of pursuing the venture….Goods cease to be in transit when they are on a journey which is not in reasonable furtherance of their carriage to their ultimate destination.”
  12. Clause 18 of the ICC states “It is a condition of this insurance that the Assured shall act with reasonable despatch in all circumstances within their control“.
  13.  Cl 12 of the Institute Cargo Clauses 1/1/2009 deals with Forwarding Charges and states Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under this insurance, the insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject- matter insured to the destination to which it is insured.
    This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence insolvency or financial default of the Assured or their employees”.

 

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1 comment

  1. Keith Saunders

    Great article, however, as I understand matters, the YANTIAN EXPRESS was not delayed at Freeport for want of security. Shipowners provided an ISU2 to Salvors, the vessel remained at Freeport whilst repairs etc were undertaken. Of course, this doesn’t change the situation for Cargo.

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