200% Accumulation clause

The most common version of the 200% Accumulation clause reads as under:

‘Should there be an accumulation of interests beyond the limits expressed in this policy by reason of any interruption of transit beyond the control of the Assured or by reason of any casualty or at a transshipping point or on a connecting vessel or conveyance, this policy shall attach for the full amount at risk (but in no event for more than twice the limit per vessel or other conveyance contained in the policy) provided written notice is given to the company as soon as known to the Assured.’

The three key requisites here are:

1. The accumulation should be outside the Assured’s control
2. The ‘limits’ expressed in the policy should be clear as ‘twice the limit per vessel or other conveyance’. If not, there will be confusion.
3. Written notice should be given by the Assured to the insurer as soon as he comes to know of the accumulation. This fact is often conveniently forgotten.

Many cargo insurers in India specify, both a ‘Limit per sending/conveyance’ as also a ‘ Limit per location’. Here, Limit per sending represents the maximum liability of the insurer towards the cargo on any one conveyance. Limit per location represents ‘unintentional accumulations in the ordinary course of transit’. As a matter of tradition/routine the Limit per location is taken as twice the Limit per sending ( possibly drawing from the 200% Accumulation clause). Strangely enough, some insurers have a Limit per location as also the 200% Accumulation clause in their policies.My submission is this is not required. If both are present, and if the wording of the 200% Accumulation clause is not as defined earlier but merely says ‘policy shall attach for the full amount at risk but in no event for more than twice the limits contained in the policy’, then the confusion gets compounded. Does it refer to twice the Limit per sending or twice the Limit per Location, as both are stated in the policy?

Often we see two major misconceptions related to the ‘Limit per Location’/ 200% Accumulation clause. One, the difference between an unintentional accumulation and an intentional storage gets blurred and many underwriters, intermediaries and clients are of the view that the Limit per Location would represent the maximum liability of the insurer even in cases where ‘ intentional/deliberate storage’ is also covered under the policy. This is incorrect and should intentional storage be covered, under a marine cargo policy ( which for now cannot be, in India as per GIC), separate limits of liability need to be mentioned for these storages on the face of the policy. The second misconception is that unintentional accumulations can occur only at load-ports, discharge ports or transshipment ports or in other words, the cargo should be off the vessels. Not necessarily. The accumulation could well be on a connecting vessel/conveyance so long as it is beyond the control of the Assured.

If the 200% Accumulation clause is used in an Inland transit policy, some interesting theoretical possibilities emerge. Assume, an Inland transit policy is issued with a Limit per sending of INR 2 million and a Limit per Location of INR 4 million or 200% Accumulation clause. Five trucks in a convoy carrying cargo of INR  2 million each get ‘interrupted’ en route say due to landslide or breakage of a bridge or heavy snowfall. During the period they are halted, if there is a terrorist strike and assume all the 5 trucks with cargo get blown off. Will the policy pay the entire INR 10 million as per the Limit per sending OR invoke the 200% Accumulation clause limit/Location limit and restrict liability to INR 4 million, as the event causing the loss was one?

The distinction between an intentional storage and 200% Accumulation clause was well brought out by the United States District Court, New York in the case St.Paul Fire and Marine Insurance Company vs Novus International Inc.

In this case, Novus International Inc had purchased a a marine cargo policy which had Limit per sending of US $ 10 million and was also subject to the 200% Accumulation clause, the wording of which was tweaked as under:

‘Should there be an accumulation of the interests insured hereunder beyond the limit(s) of liability expressed elsewhere in this policy by reason of any interruption of transit or circumstances beyond the control of The Insured’s corporate risk manager  or equivalent, or by reason of any casualty, or at a transshipping point, or on a connecting conveyance. This Insurer shall, provided notice of such accumulation is given to This Insurer as soon as practicable after it becomes known to The Insured’s corporate risk manager or equivalent, hold covered such excess interest and shall be liable for the full amount at risk, but in no event shall this Insurer’s liability exceed twice the limit of liability’.

Apparently the broker had attempted to qualify the word ‘Assured’ to mean the ‘Assured’s corporate risk manager’ to ensure wider benefit to the client. The policy also covered intentional storage at named warehouses with specific limits of liability mentioned against each. As the business of Novus International Inc. was not doing well, the sales people had taken the call to consolidate unsold inventory lying in different warehouses to one particular warehouse- PDM warehouse. These movements had started even before the policy commenced. Unfortunately there was a flood and stocks worth US $ 5 million plus were destroyed. The limits in the policy for intentional storage at this location was US $ 2 million, which St. Paul paid up. The plea by Novus was that 200% Accumulation clause should apply, there should be no distinction between accumulations or intentional storage and they should be paid the full value of the claim of US $ 5 million. The argument by St.Paul was that the intentional storage cover( warehouse cover) and the marine cargo policy limits should be read separately.

The Court while delivering the judgement in favor of St.Paul Fire & Marine Insurance Co. said that intentional storage was a part of the same policy and the same limits could apply IF any of the conditions set out in the 200% Accumulation clause were met. The conditions are a) interruption of transit b) circumstances beyond the control of the corporate risk manager c) a casualty. Novus had not claimed this to be an ‘interruption’ or a ‘casualty’ but as’ circumstances beyond the risk manager’s control’. The Court did not agree to this argument and said that the accumulation was neither brought to the notice of the corporate risk manager by the concerned employees nor did the risk manager attempt to ascertain the actual value of stocks in this location pro-actively. Hence it was stated to be NOT  a case of ‘ beyond his control’ but ‘ failure to control’.

Instead of using manuscript wordings, many a time, it is better to keep things simple.