Coronavirus -Challenge 3

COVID-19 and the nationwide 21-day lock-down in India announced by the Prime Minister has brought the focus back on marine cargo insurance, hitherto considered a ‘commodity’, which as a matter of the buyer’s right has to get cheaper by the day. The sudden announcement caught people unaware and assureds whose cargo was/is out on the national highways, state highways and lesser traveled roads of India on trucks and trailers certainly had/have reasons to worry. The value of goods on trucks on the roads at any point in time could be a mind-boggling figure. I will not hazard a guess.

One standard question which every assured be it a large corporate house or a small trader/ exporter-importer asks is:

” So much of my cargo is out on trucks on the roads. Due to the lock-down, the trucks are not allowed to move further towards the destination and they are stopped/stranded on the way in different parts of the country. Will my marine cargo policy on Inland Transit clauses – A terms provide cover during this period of stoppage which is beyond our control? Further , once the situation improves, will cover be available till the intended final destination in India?”

The reply will be in two parts:

1. If it is a standalone inland transit between any two locations in India, coverage under the cargo insurance policy would continue as long a the cargo is ‘ out of the assured’s control’ and in the ‘ordinary course of transit’ as stated in Duration of Transit clause ( 6.1 of INLAND TRANSIT CLAUSES -2010) & would terminate only on the earliest occurrence of one of the eventualities specified in 6.1.1 to 6.1.6. There is no restriction on the number of days the transit should take from start to end. A word of caution — Although cover continues during the ordinary course of transit, irrespective of the number of days, any loss, damage or expense proximately caused by delay will be an exclusion  as it would fall under 2.4 of ITC.
2. If the inland transit is incidental to an import policy on warehouse to warehouse basis,  cover would continue as long as the cargo is out of the assured’s control and in the ordinary course of transit, but the Duration will be governed by  8.1 of the Duration clause of the Institute cargo clauses -2009 & would terminate only on the  earliest occurrence of one of the eventualities specified in 8.1.1 to 8.1.4. Care must be taken to ensure that from the date of discharge from the oversea vessel at the discharge port, the cargo reaches the named final destination within 60 days (8.1.4). If it appears that due to the lock-down this may not be achieved, it would be prudent to inform the insurer and seek extension of the Duration clause.

What happens if the transporters invoke ‘force majeure’ and attempt to come out of the Contract of Carriage as evidenced by the Lorry Receipt?  Some news, although unconfirmed , states that one of the Transporters Association has taken such a position, although no assured has so far come up with this issue. What will be the impact? If transporters say that this being a force majeure, they cannot be held liable for the safety and safe delivery of the cargo, can the cargo insurer be held responsible? Possibly, such situations were not foreseen and hence the Inland Transit clauses do not have a provision for Termination of Contract of carriage unlike the Institute Cargo clauses (Clause 9), discussed at length under Coronavirus – Challenge 1. The essence of this clause is that in such an eventuality ” this insurance shall also terminate unless prompt notice is given to the Insurers and continuation of cover is requested when this insurance shall remain in force, subject to an additional premium if required by the Insurers…”.  Insurers will do well to draw on the provisions of ICC to provide a solution in case of inland transits getting terminated, PROVIDED the assureds promptly inform them of the same and seek extension of cover for whatever period possible and on whatever terms and conditions.

Another question some assureds pose is ” If I/the transporter on my instructions is able to unload the stranded trucks and temporarily store the cargo in a safe place nearby to avoid loss/damage, will the cover under the policy continue?”

A strict interpretation of the Duration clause under  Inland Transit clause- 2010 will show that these acts will fall under 6.1.2 leading to termination of cover. Further, the Cargo Termination of storage in transit clause ( Amended) would prohibit any intentional storage and this storage for safety purposes may well be termed/ attempted to be termed ‘intentional storage’. It would be a travesty of justice should such interpretations be made, given the grave situation COVID-19 has forced us into. I will stick my neck out and say that any such preventive action taken by an assured for safety of the insured cargo  should fall under Minimizing Losses – Duty of Assured clause 9.1 of the ITC which reads as below:

” It is the duty of the Assured and their servants and agents in respect of loss recoverable hereunder
9.1 to take such measures as may be reasonable for the purpose of averting or minimising such loss.

The clause further says ” the underwriters will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges properly and reasonably incurred in pursuance of these duties.” 

This clause goes back to a fundamental requirement, which we often quote – ‘the assured should act as if he is uninsured’, meaning he should take all possible steps to protect his cargo from loss and despite the best efforts, if a loss happens, take steps to minimise the loss. Merely because he has a cargo insurance policy does not mean he can leave his cargo without taking utmost care to protect it. Notwithstanding the fact that this storage is intentionally made by the assured ( to protect the cargo), 9.1 of the ITC would over-ride the Cargo Termination of storage in transit clause ( Amended). What is more, the additional expenses reasonably incurred by the assured too should be reimbursed by the insurer, whether a loss had occurred or not. Assured may take other steps too to prevent loss or damage to his cargo in the stranded trucks, like he may engage security personnel ( if available), put on additional layers of tarpaulin, etc. These too should be reimbursed by the insurers, if found reasonable and in line with the duties cast on the assured by 9.1 of the ITC.