Coronavirus – Challenge 2

India is in total lock-down for 21 days. Many other countries are under lock-down too. All this, in a bid to flatten the curve i.e. reduce the pace of spread of COVID-19 and ultimately annihilate the virus. While these stringent measures go to protect the physical health of its citizens, each country is grappling with and will continue to grapple for a longer period over its economic health. Does the term lock-down mean a total closure of movement of goods across the world? Certainly not, though movements have reduced considerably as each country puts in place tough measures to prevent the spread of this virus.

A big challenge posed to marine insurers and assureds worldwide is the sudden imposition of lock-downs in many places, when goods are already in transit, having started when there was no lock-down. The goods in transit stand exposed, perhaps from more quarters than in normal times & every assured seeks comfort in knowing if his goods continue to be covered whilst in transit or not. All and sundry have started poring over the fine print in cargo policies. One such challenge faced was highlighted under Coronavirus – Challenge 1. 

In this post, let us examine another challenge arising out of the nationwide lock-down in India for 21 days starting from 25th March 2020. Depending on the prevailing situation after 21 days, decision will be taken about easing the lock-down albeit gradually. The challenge we discuss here relates wholly to inland transit within India.

This particular assured, a cotton exporter faced a peculiar challenge. His normal method of working was to procure cotton from different ginning factories by trucks, get them to a Container Freight Station in the port city and then have them consolidated and stuffed into containers for export.Assured had an open policy covering exports on CIF terms. Now the assured had a problem because of COVID-19 lock-down. Six trucks carrying cotton from different locations had arrived at the CFS, but the CFS had to be closed due to the lock-down. Assured wanted to know if his goods were covered under the policy for for whatever duration the trucks stood at the CFS gates awaiting clearance for export.

When it was pointed out that even though he had a marine export policy and cover was intended to start from the time goods left the ginning factories, it was strictly not a seamless cover,but inland transits and the ocean voyage loosely combined into a single policy. The export invoice would be generated only after the various trucks had reached the CFS and the whole quantity was ready to be stuffed into the container. So, had there been a loss in the inland leg, the policy would have paid for the quantity lost based on the purchase price.( value at which assured had purchased cotton from the ginning factories). What would constitute the export invoice? The total quantity ( more than one truckload of cotton) stuffed into the container at a price negotiated by the assured with his overseas buyer. One may wonder what will happen if any loss/damage was to take place at the time of stuffing at the CFS? As accumulation and stuffing happens here, technically this will be deemed to be intentional storage and hence as per the Cargo Termination of storage in transit clause ( Amended), cover would not be available under the marine policy. Assured should have made arrangements for a separate Fire policy.

Coming back to the main issue, it was explained to the assured that cover under the inland portion of his policy would cease 7 days after the trucks had reached the CFS town.( 6.1.5 of Inland Transit Clauses-2010). Assured was taken aback and said that the position might not change within 7 days, so what next? One option suggested was to move the goods back to the ginning factories after taking the concurrence of the insurer for the return journey on terms to be agreed. This was a non-starter for the assured, as he said all the ginning factories too had been locked down after these movements. Another option was to unload the goods at any nearby warehouse or if not available at a warehouse in another town, again subject to prompt intimation to the insurer and their acceptance to cover the alternate transit on terms to be agreed. Assured said no to this suggestion too, as he was an exporter and did not have any warehouses (owned or rented) and neither could he rent one at short notice.

The truck operators too mounted pressure on the assured saying that they had completed the transit ( bar the unloading bit) and they needed their empty trucks back at a safe location or for ferrying other loads. Assured was able to rent out a warehouse finally, albeit at an exorbitant rent and the goods were unloaded there. No harm done, but the assured was disillusioned that insurance had not come to his aid in times of a crisis like this. Possibly, assured was entitled to his point of view, but the fact to be noted is that a marine cargo policy is a legal document with its own boundaries of coverage, exclusions and limitations. The cargo insurer cannot be considered a a messiah who would lead us out of any problematic situation. Assureds would do well to understand the scope and limitations of insurance policies and it is incumbent on intermediaries to guide them suitably.