Child labor, Modern slavery & cargo

The UN resolution declaring 2021 as The International Year for the Elimination of Child Labor is  a step towards eradicating this inhuman injustice heaped on an innocent child. It is estimated that the numbers involved in child labor around the world today is 152 million. The ILO has called for “a whole-of-supply-chain approach to address child labor in global supply chains”. When supply chains are involved, can marine cargo insurance be far behind?

Apart from child labor, modern-day slavery does exist in the form of bonded labor or forced labor and the number of exploited people are estimated to be 40 million. This exploitation or suppression is certainly not related to the past alone, although insurers like Lloyds, Aviva & RSA have expressed regret for their role in the trans-Atlantic slave trade in the past. What did they do? They had provided insurance coverage to property and ships involved in the slave trade from West Africa to the modern world. The insurance industry also feels that something must be done to correct historical wrongs or the need to be politically correct in today’s world, where social activism or costly litigation could prove costly in terms of money and reputation.

Some insurers/brokers- Marsh, Fidelis and AON have developed a clause which will be attached to marine cargo policies.I have not had the opportunity to look at the exact wordings but the crux is that claim payments under the policy will be subject to the assured establishing that, in respect of the cargo insured, he has followed all legal and regulatory compliance in so far as they relate to forced or child labor. Will the clients accept this clause? The brokers say they will educate the clients and try to impress upon them the need to have this clause on a ‘best effort basis’. Implementation could be slow. However, it is to be noted that most large companies, especially the ones operating in different geographies have clearly laid-down policies on Modern slavery & Child labor, which are accessible from their websites. The standard operating procedure in this regard, the methodology their suppliers, contractors, sub-contractors, job-workers have to follow, the affirmations or declarations to be given and the failure to adhere to this SOP, etc. are clearly documented. In short, there is increased awareness in this regard and due diligence is carried out on the supply chains.

The Joint Cargo Committee had crafted a Prohibited Labor clause ( JCC2019/008) even before the brokers firmed up their wording. The Prohibited Labor clause reads as under:

” Where the Insured is subject to Section 307 of the US Tariff Act 1930, as amended by the US Trade Facilitation and Trade Enforcement Act of 2015, or equivalent national legislation, payment of any claim shall be conditional on the Insured having undertaken due diligence as required by US Customs and Border Protection, or as required by other such legislation, evidence of which the Insured shall be prepared to produce, as required”.

So, one may wonder what is Section 307 of the US Tariff Act, 1930? 

” Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labor – including forced child labor. Such merchandise is subject to exclusion and/or seizure, and may lead to criminal investigation of the importer(s).”

So, the insured is expected to undertake due diligence of the entire supply chain to ensure that at no stage forced labor or child labor is used. For e.g. if child labor or forced labor is used in picking the cocoa beans which go into manufacture of chocolate, the chocolate manufacturing company has to undertake due diligence as cocoa beans are part of their supply chain. It is not sufficient they exercise due diligence but they must be in a position to establish to the insurer with documentary evidences of having done so. In the absence of the same, their cargo claims, if any could be impacted, if this clause forms part of the policy.

Intention is laudable but implementation, both in terms of acceptance by clients and how claims will be looked at, is a big question.Is this clause in the nature of a ‘clause paramount’ or an ‘implied warranty’? My submission is that even in case of an implied warranty like the one in Section 43 of the Marine Insurance Act, 1963 which talks about legality of the marine adventure insured ……. it should be something related to the marine adventure in question and not something remote. Continuing the example of forced labor used to pluck cocoa beans which when made into chocolate and shipped suffers a loss , can the insurer say that he is not satisfied with the due diligence evidence provided by the insured and reject the claim on the strength of the Prohibited Labor clause? Common sense says No. Not connected to the insured voyage, change in specie ( cocoa beans to chocolate) and what not. the evidence provided by the insured can be looked at very subjectively by the insurer. What happens if an innocent assignee lodges a claim for loss or damage? Will this clause still be paramount? Can the marine adventure in question be called illegal and the claim declined? No.

These clauses need to be revisited as to their acceptability, practicability and legality in relation to a marine adventure. Look forward to a global debate on these clauses..

Welcome your opinions/views.