Institute Classification clause

In any marine cargo policy covering movement of goods by sea, apart from the insuring clauses i.e. Institute Cargo clauses A,B or C, one of the standard or rather one can say, embedded clauses is the Institute Classification clause -01/01/2001- CL 354. So, can a policy which is subject to the Institute Classification clause offer cover to cargo carried on a vessel which:

• is not classed by any Classification society ?
• is classified by a non-IACS society ?
• is older than the age-limit specified in this clause?

The answer is a big YES. However this comes with an obligation on the insured to ‘promptly inform the underwriters’ for obtaining terms and rates, in short their consent for allowing this exception. This is applicable in the first two cases cited above and whether to grant cover or not is left to the underwriter’s judgement. It is not a ‘Held covered’ proviso. In case of the vessel’s age-limit being breached, strangely enough, no ‘prompt notice to underwriters’ is stipulated, though the clause mentions ‘subject to an additional premium to be agreed’. This could well mean that should there be a loss of cargo carried on an over-aged vessel, the claim cannot be declined by the underwriters but at best they can seek and charge an additional premium. Personally, I feel this is a dangerous slip-up and even if the age of the vessel exceeds the stipulation in the Institute Classification clause, there should be prompt information to the underwriters who must have the discretion of accepting or rejecting the deviation under the Institute Classification clause. Old-timers will recall that in India, there used to be a vessel-approval system by GIC, non-classification extra and overage extra earlier. All these sound practices are non-existent now.

Are there vessels in use which do not conform to the Institute Classification clause?  Yes. However to put matters in perspective, it must be understood that there are over 125 classification societies worldwide. Out of this only 13 societies are members of International Association of Classification Societies (IACS),whose membership is the requirement spelt out by the Institute Classification clause. 90% of the cargo vessels plying all over the world( by last count in 2018, around 53,000) are registered with these 13 societies. So there could be cargo carried in the other 5000 odd vessels which could pose the challenge of the Classification clause for insurers and insureds alike. We had one of our clients whose requirement was that a certain fixed quantity of cargo had to perforce be carried by non-classified vessels from Vietnam. This was a small portion of the total turnover under the policy. We explained this to the insurer who inserted a manuscript wording in the policy stating that such shipments were covered.

‘Prompt information to underwriters’ in case of a non-IACS classed vessel has also been the subject-matter of litigation. In a 2018 judgement by the National Consumer Disputes Redressal Commission in Adani Enterprises Ltd vs United India Insurance Company Limited, in favour of the insurer, it was explained what the ‘prompt information to the underwriter ‘ should contain. In this case, Adani Enterprises Ltd had chartered a vessel (to carry their cargo of coal) which was classed with INCLAMAR ( a non-IACS Society) and hence a deviation from the Institute Classification clause, to which the policy was subject to. The vessel MV Rak Carrier sailed from Indonesia on 14th June 2011 & sank with the entire cargo on 4th August 2011 near Mumbai. The claim preferred for the cargo loss was rejected by United India on the grounds that the carrying vessel did not conform to the Institute Classification clause which was part of the policy. Insured contended that on 14th June 2011 itself, they had sent a letter to the insurer stating the name of the vessel, year of build and the name of the Classification Society which had classed it. The Tribunal opined that there had to be an ‘ express notification’ to the insurer stating that the cargo was being carried in a vessel which was not classed by a society which was a member/associate member of IACS. Merely stating the name of the vessel and the name of the classification society would not suffice.

Adani  Enterprises further contended that by a similar letter of 25th June 2011, they had informed United India about a subsequent shipment which was also on a non-IACS classified vessel. Coverage was granted by charging an additional premium, then why not in the earlier instance relating to MV Rak Carrier, was the argument. The Tribunal felt that since the insurer had granted cover in the subsequent case by charging additional premium meant that they had been notified one way or the other or had come to know on their own that the vessel in question was non-IACS classified. In the case of MV Rak Carrier however, insured failed in his obligation of notifying that the cargo was on board a non-IACS classed vessel. 

Opinions invited.