- The recent English Court of Appeali judgement has clarified the scope of cover in a cargo policy in that if the Insured could show some interest in the property insured, they would be entitled to recover even if they were not at risk at the time of the loss. The earlier position which we subscribed to, was to consider first whether the risk of loss was with the Insured, and only then consider whether the Insured had an Insurable interest on the property insured. The position must now change given the latest English judgement, and which is beneficial to the cargo interests.
- Cargo sales are frequently accomplished on various Incotermsiii such as FOBiv, CFRv and CIFvi. The main difference between these terms is that a seller under FOB and CFR is not required to insure the cargo whereas there is such a requirement for a CIF contract. However, sellers are on risks in these two contracts (FOB & CFR) prior to the transfer of risks (which occurs upon loading) and would often, insure the cargo till such time the risk of loss has transferred to the buyers. Similarly, a buyer in a CFR and FOB contract would often insure so that they are protected when they are at least on risk (after the cargo is loaded)vii.
- With respect to cargo insurance, this is generally effected under Institute Cargo Clauses (A)viii, (B)ix or (C)x of the 1/1/2009xi.
- The Law and Practice Clause of the Institute Cargo Clauses (A), (B) or (C) expressly provides for the insurance to be subject to English law and practice.
- The Transit Clause (Clause 8) of the policy provides for “warehouse to warehouse” cover and given that the limitation of the transfer of risk has been done away with, a FOB buyer should be able to recover an indemnity under their cargo policy, even when the risk is yet to be transferred to him/her, provided he/she can show that they had some interest in the cargo (for instance, if they had paid an advance for the cargo). As mentioned above, given that the cargo is generally insured on a warehouse-to-warehouse basis, this should not, in theory, increase the risk premiums. Additioinally, if there are payouts to the Insured prior to risk transfer, the Insurers should be entitled to, under subrogation, pursue the Insured’s counterparty (the seller) for recovery. While this, in theory, is possible, we admit that it may be difficult to recover in practice.
- With respect to other marine policies (Hullxii, Liability – P&I, Transport Liability, PI, etc.), the effect of this judgement is limited given that these policies are non transferrable and that the cover only incepts when the Insured is on risk.
i. Quadra Commodities S.A. v XL Insurance Company SE and others (https://www.bailii.org/ew/cases/EWCA/Civ/2023/432.html) – see also article of 7KBW which can be viewed by clicking the hyperlink.
vii. Shipments effected in containers should ideally use incoterms such as FCA, CPT or CIP.
xi. The earlier wordings were of the 1/1/82.
xii. See clause 4.2 of ITCH 1/10/83.