Insufficiency of Exclusion 4.3 in protecting claimants’ interest

The general perception among many is that the exclusion 4.3 under ICC, relating to insufficiency or unsuitability of packing or preparation of the subject-matter insured has been diluted in favor of the assured under the 2009 version of the ICC. An insurer can invoke this exclusion only when the assured or his employees (employees does not include contractors) is involved in the packing. So, in case of an insured who is involved in importing a cargo, the exclusion of ‘insufficient or inadequate packing’ cannot be invoked against him …….. or so you thought. Nothing can be further from the truth. The drafters of the ICC 2009 wordings, I daresay have hoodwinked the innocent assureds by creating a facade of the wordings being in their favor, while all along, giving the upper hand to the insurers to invoke this exclusion at will.

Let us take a close look at the wordings of Exclusion 4.3 under ICC-2009 clauses.

‘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) ‘.

The key words here for this exclusion 4.3 to apply would be:

1. If the packing/preparation done by the assured/their employees are found insufficient/unsuitable. (This obviously does not apply when the assured is an importer)
2. However, the wordings in bold are crucial — If the packing/preparation is carried out (by anyone) ‘ prior to the attachment of this insurance’. When does the insurance attach? As per the Duration clause of ICC – ‘insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit’. So, for this part of Exclusion 4.3 to be redundant, the goods should not be in packed condition when ‘first moved in the place of storage’, quickly packed and ready for the purpose of ‘immediate loading’. Can there be anything more ridiculous than this? Especially, when the assured/claimant has no control over when the packing is actually done/carried out. The buyer/assured can specify what type of packing needs to be done but may not always be acceptable to the seller. More important, when the packing is done is certainly out of scope of buyer/assured. If the same packing ‘deemed insufficient’ in the opinion of the insurer/loss assessor, if carried out after the first movement of the cargo and before immediate loading (during the narrow time span) on to the conveyance, this exclusion CANNOT be invoked, but if it is packed and kept ready for first movement, then the exclusion comes into play.

It is 15 years since the ICC-2009 came into being and it is high time, these ridiculous conditions surreptitiously pushed in, at the behest of insurers be set right and innocent claimants get a fair deal.

When dealing with an import claim in India, it becomes difficult/if not impossible to establish at what date and time the packing took place overseas and at what date and time the cargo was first moved for the purpose of immediate loading overseas. Am sure, same will be the problem in any country of import where the claimant is.

An interesting case on ‘purported insufficiency of packing’, I came across some time back. A big client, a big insurer and a big surveyor and this is how the case panned out. The client had imported some machine parts in 20 odd crates in containers. There were no external signs of any damage and clean delivery was taken. When the crates were opened it was found that some 5 stands of the machines were broken. The surveyor/loss assessor first sent a mail to the insurer saying that the damages were due to ‘insufficiency of packing’ and hence not payable. Insurer pointed out that insured or his employees were not involved in the packing in any way. So, what does the surveyor do? He writes to the insured saying ‘Plz specify the peril that caused the damages’. Insured’s reply – ‘I have a policy on ICC-A terms, so it is up to the insurer to establish under what exclusion my loss/damage falls.’ The bombastic reply from the surveyor reproduced verbatim — ‘ Sir, I am asking you to name the peril that caused the loss. An ‘All-Risks policy’ does not mean ‘ All-Claims paid ‘ policy. If you do not name the peril, we will recommend No Claim. Insured took up with the top brass of the insurer about the surveyor’s approach. The surveyor, then sent a mail to the insured saying ‘packing was done prior to attachment of this insurance’, without a shred of evidence. While, this is case of the surveyor’s ego/lack of technical acumen/soft skills, the larger question is why the framers of ICC-2009, with their vast knowledge, experience and sense of fair play, chose to adopt these sorts of wordings that affect the interests of innocent assureds.