Citing the right reason for a claim declination

A recent judgement of the National Consumer Redressal Commission caught my eye. The insurer had declined a marine transit claim and the aggrieved insured complained to the State Consumer Redressal forum which ruled in favor of the insured. However, the insurer went on appeal to the National Commission which upheld the State Commission’s decision and ordered the appellant insurer to pay the claim along with interest.

The case in question is ICICI Lombard General Insurance Co. Ltd vs Honest Bio-vet Pvt Ltd. The insurer was perhaps justified in declining the claim but the wrong exclusion cited as a reason for declination resulted in their losing the case before the State Commission and on appeal before the National Commission, as well.. Brief facts of the case are as under:

Honest Bio-vet was a manufacturer and exporter of various chemicals. They were to export a consignment of 3000 kilograms of Meta Chloro peroxy benzoic acid ( MCPBA) from Ahmedabad to Valencia, Spain. The cargo, it is stated was packed in UN approved fiber drums ( in another part of the judgement it is stated as cardboard drums) The consignment which was insured with the appellant reached the CFS at JNPT  where it was stuffed into a dry box high-cube container. It may be noted that the stuffing was not done by the insured or his employees. The container got ‘shut-out’ and could not be loaded on to the originally chosen vessel. The container was shifted to another terminal for awaiting the immediately next vessel of the shipping line. Here, a leakage was noticed in the container along with plumes of thick smoke emanating from within.

The loss assessor who visited the spot, examined the loss and verified relevant documents had two comments to offer:

1. Section 7 of the Material Safety Data Sheet for MCPBA states that the cargo should be kept refrigerated during storage at 4 degrees Celsius. During the inland transit and the time the cargo was lying at the port, it was in a dry box high-cube container only, which was over-stowed with other containers. The sunlight and excessive heat led to melting of the cargo resulting in the loss. 
2. This nature of the cargo or inherent vice was supposedly stated on the commercial invoice issued by Honest Bio-vet as well.

Accordingly the insurer declined the claim citing Exclusion 4.4 of the Institute Cargo Clauses which reads ” loss damage or expense caused by inherent vice or nature of the subject matter insured”.

Points to be considered in my opinion are:

• Whether the insured had informed the insurer in his proposal that the cargo viz. MCPBA required controlled temperature during transit/storage  and if it was accepted by the insurer.
• Was the policy issued subject to ‘Shut-out cargo’ clause? The loss happened when the container was in the terminal after being shut-out from the vessel it was booked in.

Being an appeal by the insurer, the National Commission relied solely on the declination reason cited by the insurer and ruled that this was not a case of ‘inherent vice’. Even according to the insurer, had the cargo been kept refrigerated at the recommended temperature, the loss would not have happened. So this was an external factor and not an inherent vice of the product itself as specified under Exclusion 4.4 of the ICC. Curiously enough, the National Commission asked the insurer’s counsel to point out any other clause (exclusion) in the policy/ICC which would justify the insurer’s stand of denial of the claim for the cargo not being stored/transported at the prescribed temperature. The counsel was unable to do so and hence the appeal was dismissed. Looks like the Presiding Officer of the National Commission had studied the Institute Cargo Clauses thoroughly and had asked a leading question of the insurer’s counsel. 

Had the insurer invoked Exclusion 4.3 of the Institute Cargo clauses, in all probability, the decision to decline the claim would have been upheld.  4.3 reads as under:

” loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors)”.

Yes, it can be argued that stuffing inside the container was NOT carried out by the Assured or their employees but at the CFS by independent contractors and hence this exclusion will not come into play. The question to be asked is ‘ did the Assured instruct the CFS to stuff the drums in a refrigerated container or not?’ In all probability, the answer will be NO, because the movement from Ahmedabad to JNPT too was not in a refrigerated truck and refrigeration is something which would be a MUST, if cargo is to be transported at 4 degrees Celsius in India, especially in the month of May, when this whole issue unfolded. So it is quite apparent that right from the start of the transit in Ahmedabad, the Assured was privy to the insufficient packing/preparation which was done at their place. If the policy was not subject to ‘ Shut-out’ cargo clause, the insurer could also have brought this into play citing that the loss happened during the shut-out phase which was intended to be covered.

Look forward to your comments & views.