Coronavirus & Cargo insurance

The 2019-nCoV or simply the Coronavirus, which originated in the city of Wuhan in China is spreading fast all over the world. The World Health Organisation has declared a global health emergency. Latest reports say there  are 14,380 confirmed cases of Coronavirus and there have been 304 deaths so far. Apart from China, confirmed cases have come in from at least 24 other countries across the world.

Corona virus and cargo insurance — is there any connection? Yes.

This starts with the impact on the global economy due to the Coronavirus outbreak. China, being a major exporter as well as consumer and the virus emanating there, this is quite obvious.Manufacturing activities in China have slowed down and where these form the inputs for manufacture of other goods elsewhere in the world, the snow-ball effect comes into play.

Even the already manufactured goods, raw material & finished goods imports into China would slow down as many shipping lines/ airlines reconsider their options of plying to and from China. As ships which touch Chinese ports and their crew are looked upon as potential carriers of this Coronavirus, ports in other countries would be extremely cautious.

• Port operations in China and other Asian countries could slow down considerably as enhanced safety measures are put in place to prevent spread of the virus.
• There could be possible quarantining of the crew as also the goods imported. This will result in delays and goods which are perishable could get spoilt and claims lodged under cargo policies. Unfortunately, they have to be declined.
• Goods meant to be supplied  ‘Just-in-Time’ may fail to meet the timelines, leading to cancellation of contracts or invocation of penal clauses.
• If the situation worsens, countries may look at the trading histories of ships, the last ports touched and also a thorough examination of the health of the crew members. There could be possible scenarios where a ship is not allowed entry into a particular country at all. What does the ship do? Will the goods be discharged at a port in another country? Can this be called a ‘port of distress’ and if the goods are to be sold there at lower rates, will the difference be admissible as claims?
• Alternately, if the Government of a country does not allow a ship to touch any of its ports and if any of the cargo owners has a Rejection insurance, can a claim be lodged under the same? What if the ship-owner does not have the wherewithal to sail to a different country and declares General Average?
• If port operations are completely shut down( if port is declared unsafe) and discharged cargo is found damaged (any reason), can timely inspections and loss assessments happen? There could be disputes on the extent of loss, aggravation, etc. at a later date.
• If the sound discharged cargo at a port which shuts down subsequently, there could be issues on the Duration clause under ICC as the goods may not reach the final destination within 60 days after discharge at the port. Will the underwriters agree to provide for an extension?

While some of the possibilities may appear extremely remote at this juncture, they cannot be ruled out totally. It will all depend on how soon and how effectively the Coronavirus is contained. Am sure the fine-print in many business contracts and insurance policies will be looked at closely, different arguments advanced and new interpretations found.  Who would have thought that ransom paid to pirates could be considered under General Average? The General Average coverage had been there all along in the Cargo insurance policies but it took an enormous problem in the form of Somalian pirates capturing ships and demanding huge ransoms, for a new interpretation to emerge.

Pray that the Coronavirus threat fizzles out soon but ……… keep the insurance ‘powder’ dry.