Can exclusion 4.5 under ICC be bought back?

This will be controversial and the purists may not like it, but I believe that there is a fair case for re-looking or modifying the Delay exclusion 4.5 of ICC.

Exclusion 4.5 of the Institute Cargo Clauses reads as under:

“loss damage or expense caused by delay, even though the delay be caused by a risk insured against (except expenses payable under Clause 2 above”).

Why are losses, damages or expenses arising out of delay excluded in the first place? If no insured peril had operated and still there is a delay in transit leading to loss of market, loss of shelf-life, etc.the same cannot be and should not be considered under the policy is understandable. However, if an insured peril leads to a delay and  especially perishable commodities, vaccines and certain pharmaceutical products deteriorate or become unfit for the intended use, still this exclusion would come in the way of a payment ( ‘even though the delay be caused by a risk insured against’). In a sense, it is treated as a consequential loss and hence not payable. We have had many instances of this nature and have had tough times offering a logical reasoning for this exclusion to innocent assureds/assignees. One needs to look at 4 different scenarios of delay and their outcomes on the cargo:

1. Delay in transit happens without the operation of any insured peril under the policy and there is no physical loss or damage to the cargo but there is a commercial loss
2. Delay in transit happens without the operation of any insured peril under the policy and there is  physical loss or damage/deterioration to the cargo
3. Delay in transit happens due to the operation of any insured peril under the policy and there is no physical loss or damage to the cargo but there is a commercial loss
4. Delay in transit happens due to the operation of any insured peril under the policy and there is physical loss or damage/deterioration to the cargo

Is there not a case and a genuine gap in coverage for cases falling under (4) ? I honestly feel there is and even in certain cases of (3) too, which we would discuss later in this post. It is also difficult in some cases to determine whether the loss was caused/or how much of the loss was caused by the insured peril itself and how much because of the subsequent delay? Insurers tend to take shelter under the Delay exclusion under such cases.Instances of  (1) and (2) should obviously not be payable under the policy. Difficulty is that in an All-Risk policy on “A” terms, the perils insured against are not listed out. So if a provision has to be created for covering instances of (4), then how to ensure that instances of (1) and (2) do not get paid for? Need to find solutions for this.

Insurers have offered limited coverage for delay in certain cases where there is genuine need and of course, the desired price is paid by the insured. Recall a case, where an insured who manufactured vaccines desired to have a cover under inland transit ( where Delay exclusion is similar) including Delay. The requirement was that if a consignment was not delivered within 72 hours ( whatever be the reason,they would lodge a potential claim. Subsequently if on testing in their laboratory, it was found that the vaccines had not lost their potency, there would be no claim. This you will see encompasses Delay from (1) to (4) listed earlier. The cover was granted after checking two parameters — 1) The SOP of the insured which spelt out that back-up refrigerated trucks would be made available every 100 kilometers and the stringent procedures they followed. 2) The contracts with the transporters had a clause that if delivery was not completed within 72 hours, there would be a penalty & the freight rate paid was higher too. Pricing was considerably higher with a deductible equaling the penalty from the transporter. This account was extremely profitable over the years.

In case of overseas transits, the problem of delay gets compounded manifold especially with the advent of containers and the increasing frequency of General Average declarations. If one sees the York-Antwerp Rules, again Rule C states that” Demurrage, loss of market, and any loss or damage sustained or expense incurred by reason of delay, whether on the voyage or subsequently, and any indirect loss whatsoever, shall not be allowed as general average.”

So where does this leave the poor insured? His cargo is treated as sound and he is asked to contribute towards the General Average claim, whereas in reality, his cargo is damaged or has deteriorated because of the delay. This will be more pronounced in the case of perishable products. One would recall the General Average case involving the vessel AMSTERDAM BRIDGE. there was an explosion followed by a big fire on board due to some flammable cargo in containers. This happened after she left Mumbai and the vessel was not allowed to re-berth there. Fire-fighting followed in the outer anchorage where the vessel was stationed for over two months. Then she moved to Colombo, Shanghai but in both places she was not allowed to berth. Meanwhile General Average had been declared and many cargo owners/their insurers had submitted their Average Bonds & guarantees. Finally she berthed at Singapore and it took more than 1 year and 3 months for the cargo to be unloaded. What happened to the insureds who had perishable cargo on board not damaged by the explosion/fire? Rule C and 4.5 of ICC came in the way — they could neither claim it as Particular Average nor could it be considered under General average. They had to contribute towards General Average as well. Totally illogical and anti-insured. These types of ‘inordinate delays’ are bound to happen more frequently and hence the need to challenge Rule C in a Court of Law, bringing out the difference between a delay and an inordinate delay. Am confident that the challenge would be successful.

Again, when piracy in Somalia was rampant and some container ships captured too and released after considerable time, the ransom money was allowable under General Average. However there were very many pharmaceutical cargo on board which could not be imported into certain countries since the minimum months of residual shelf-life was not available. ( Delay under (3)) A genuine problem which begs a solution.

Certain clients from the pharma industry and other perishables now seek deletion of 4.5, Delay exclusion if caused by declaration of General Average. Some insurers are considering this cover too. A word of caution here– If 4.5 is deleted and  general Average situation arises and if any loss, damage or expense to the cargo arises due to delay, the same will get paid as Particular Average. However, as per Rule C of  YAR, the loss, damage or expense due to delay following the General Average declaration will not be considered, the cargo would be treated as sound and asked to contribute towards the General Average claim. Will the insurer pay both General Average for a cargo supposedly sound and also pay Particular Average for the same cargo damaged/lost/deteriorated due to delay? Answer is No.

Nobody likes delays in any activity much less an innocent assured whose cargo is damaged or lost due to delay following an insured peril and his insurer reads out 4.5 in his policy and declines his claim or an insured who in  general average situation submits the Average Bond but still has to wait for ever to take possession of his cargo and then finds that delay had taken its toll on it.

Inviting solutions and suggestions from readers.