A claim that was not to be

I had the opportunity to review a marine cargo claim, that had a large number of positives, some deficiencies in documentation, an understanding & empathetic insurer who was willing to overlook some of the deficiencies and yet ……. the assured decided to withdraw the claim. Deficiencies in documentation/procedure followed? Yes, it may be noted that any claim where the documentation is perfect, in one go, should be a ‘red flag’ for the claims-handler.

In the instant case, the following positives were apparent:

a) The loss was genuine

b) It was caused by a peril insured against

c) The Assured had acted as if uninsured and taken all possible steps to minimise the loss

d) The insurer too was willing to walk the extra-mile and overlook some of the deficiencies in a bid to help the assured

The assured was in the business of exporting foodgrains in containers. They had a marine cargo open policy on ICC-A terms with Seller’s Interest clause attached. Policy also carried a manuscript condition that read-” EXCLUDING loss or damage due to mold, mildew or fungus unless caused by a peril covered under Institute Cargo clauses B”.

The assured had shipped 52 containers of grains on CFR terms to a buyer in Taiwan spread over 3 shipments. All the 3 shipments got accumulated at Port Klang in Malaysia for transshipment but the accumulation limit was not breached. Heavy rains and flash floods occurred in Port Klang, some of the containers suffered water damages as they were partially covered by flood waters When operations at the port resumed, all 52 containers were shipped on board another vessel by the shipping company to Taiwan without any survey at Port Klang to ascertain the condition of the cargo. Assured did not have any control of the cargo. When the containers arrived at Taiwan, some of them showed visible external signs of fungus infestation. The Customs authorities opened these containers and on a physical examination of the cargo inside, did not allow entry of the container into the country. They submitted a report stating that the cargo was fungus-infested and being edible items should not be allowed for use in Taiwan. Some of the sound containers were accepted and taken delivery of, by the buyer. However, no opportunity was given for carrying out a survey of the 30 containers showing fungus infestation, by an independent surveyor. The buyer’s insurer did not agree to settle the claim without a survey.

The assured swung into immediate action. They zeroed in on a buyer in Vietnam who was willing to buy the fungus-infested cargo. Also, the regulations in Vietnam were less stringent and allowed the entry of the cargo. The containers with the damaged cargo were shipped to Vietnam and sold, albeit at a price lower than the original invoice price. The claim was lodged to the extent of the difference in price plus the additional shipping charges to Vietnam, under the Seller’s interest clause.

The issues before the Indian insurer were — 1) Was the damage to the cargo established? 2) Was it caused by an insured peril? 3) Had the assured acted in good faith to minimise the loss? 4) Will the loss fall under Sellers’ Interest?

The inability to carry out a survey at the transshipment port, Port Klang was recognized by the insurer. Supporting documents which showed presence of these 52 containers at Port Klang on these dates were acceptable. Further, the incident at Port Klang was a matter of public knowledge, supported by metrological data. As all the containers, did not show signs of fungus infestation, strengthened the argument that only the containers at the lower levels of the stacks in the port were impacted. Flood waters causing the fungus infestation would have been payable, had the manuscript wording been ‘ ” EXCLUDING loss or damage due to mold, mildew or fungus unless caused by accidental, external means’. Here, the wording was limited to ‘ unless caused by perils covered under Institute Cargo clauses-B’. As the containers were lying at the port, close to the sea, even this limitation would have been overcome, as there could be ingress of sea-water as well, into the containers (OR) the plea taken that water- damage to the cargo was caused by floods (covered under ICC-A) & this was the reason for the claim, fungus infestation being an additional outcome. Water damaged grains would definitely not command the same value as sound ones. There was little doubt that under the given circumstances, the insured had acted with prudence and tried to minimise the loss.

Will the claim fall under Sellers’ Interest even though the assured remained an unpaid vendor? The clause could get triggered, if following a loss, the buyer refuses to accept the shipping documents or refuses to accept the goods. In the instant case, this was not totally fulfilled as the Taiwanese buyer had accepted part-delivery of the shipment —22 sound containers out of 52. Still, the insurer was willing to look at giving the benefit of doubt to the assured and possibly arrive at a negotiated settlement. Then, why did the assured withdraw the claim?

Insurer pointed out a specific condition of the Sellers’ Interest clause and asked the assured to comply with it, if not done already. This, the assured was not willing, as his relationship with the Taiwanese buyer was far more valuable than the value of this claim and they did not want to jeopardize the relationship. Foregoing the claim was a simpler option.

So, what was this specific condition under the Sellers’ Interest clause? It read — “All rights and benefits which the Insured may possess against the Buyer and/or the Buyer’s Insurers and/or carriers and/or other persons are to be preserved and subrogated to the Insurers herein: This requires the Seller to preserve the rights of his insurance provider so that they can seek recovery from the Buyer or their insurance company once the Sellers claim has been paid.”