Loss of or damage – does it include economic loss?

1. The Institute Cargo Clauses (1/1/82 & 1/1/09), the Institute Time Clauses Hulls (1/10/83 & 1/11/95) and the International Hull Clauses 2003 provide cover for “… loss of or damage to the subject matter insured…”. Comparatively, the cover provided by various Transport Liability policies do not use the same wording and instead use “… liability for physical loss or damage toⁱ …” A question that arises is whether the addition of the word “physical” makes a material difference to the cover being provided?
2. The Lloyd’s Cargo Claims and Recoveries Module 3 states in 1.1 that what is meant to be covered is physical loss or damage and does not include purely financial or consequential loss. Similarly, Marine Insurance Clauses, 5^th edition, state in its commentary for Institute Cargo Clauses (A)ⁱⁱ that the expression “loss of or damage to” comprehends all physical loss and damage to the goods. It does not include financial loss unaccompanied by any physical loss or damage, such as loss of market, even though the cause of the financial loss was a peril insured against. With respect to the commentary for the Hull Clauses, the book does not make any specific comments. Instead, given that this has already been commented by the authors for the Cargo Clauses, we must therefore consider the same as being applicable for the Hull Clauses.
3. Accordingly, although the wordings of the Institute Cargo Clauses (1/1/82 and 1/11/95), the Institute Clause Hulls (1/10/83 & 1/11/95) and the International Hull Clauses 2003 do not expressly provide for the cover to be restricted to “physical” loss of or damage, adjusting practice has been to imply that there must be a physical loss to trigger the policy engagement.
4. We recently viewed an informative articleⁱⁱⁱ of Dr Arun Kasi & Kishore Sharma on the “Thorco Lineage”[2023] EWHC 26 (Comm). The article discusses the English court’s interpretation of “…loss or damage…”. While the earlier case law^iv held that these words meant physical loss or damage, in the “Thorco Lineage”, the judge ruled otherwise and held that these words along with the words “in connection with” were wide enough to cover economic loss in addition to the physical loss or damage.
5. The “Thorco Lineage” claim is related to a grounding incident followed by salvage and towage, which had a “physical” loss connection. However, it is not inconceivable for “pure economic losses” claims to also succeed given that there is no specific limitation or restriction provided in the words “…loss off or damage to the subject matter insured…” or to imply that the losses must be connected to a physical loss or at the very least emanating from a physical incident. Accordingly, we submit that the courts may, when asked to determine the meaning of these words, extend it to pure economic losses even if it arises unconnected with a physical loss.
6. If the intention of either the cargo or hull insurers is only to provide cover for physical losses, it would be appropriate for the wordings of the clauses to be amended to specifically reflect this. In this regard, addition of “physical” prior to loss of or damage to should, in our view, be sufficient to ensure that there is no ambiguity.
7. With respect to Transport Liability policies, the policy wordings clearly provide for the requirement of a “physical loss”. The issue which arises is that if cargo interests are able to found an economic loss claim against a Carrier (who is insured under a Transport Liability Policy) on the basis of the provisions of the Hague-Visby Rules (“HVR”), then the Carrier would have a problem seeking an indemnity given that the policy would only be triggered when there is a physical loss. Given this gap, we would suggest that either the word “physical” is struck out or alternatively, additional cover sought for the new “economic losses” exposure arising under the HVR.
8. In conclusion
   1. There is no clear basis for the construction that the words “loss of or damage” is restricted to only physical losses.
   2. Should Insurers wish to restrict cover only for physical losses, it would be best to state the same expressly in the policy, as is the case for Transport Liability policies, so as to avoid any ambiguity.
   3. Transport and Logistics Operators now may have a gap under their prevailing cover for the economic losses arising out of the application of the HVR.

^i. See Clause 1 of T1 of the Transport and Logistics Operators 2023 wordings of TT Club.
^ii. Page 12 of the
^iii. The_Thorco_Lineage_KS_and_Arun_Article.pdf (4-5.co.uk)
^iv. Serena Navigation v Dera Commercial Establishment (The “Limnos”) [2008] 2 Lloyd’s Rep.166