Non-institute clauses -Indian version

Non-institute clauses — Boon or bane? While the insuring clauses in any cargo policy set out the perils insured against, the exclusions and the duration of cover, non-institute clauses are not mandatory. They are added depending on the type of cargo, at the behest of the assured or the insurer. They are mainly explanatory in nature — either restricting or widening the coverage as envisaged in the insuring clauses or explaining the manner of assessment of any loss.Since these are not standardized (unlike the Institute clauses), insurers, brokers, why the cargo insurance industry too, have come out with different clauses, which they perceive fulfills a need. What is more, a clause of the same name can have multiple wordings with subtle differences too. Some of these wordings become intellectual property and are not allowed for general use except with the consent of the creator.In India too, multiple non-institute clauses with multiple wordings were demanded and being given by insurers without understanding the full impact of their actions. There was/is intense competition too among insurers as to whose add-on wordings ( non-institute clauses) was /is better supposedly from the assured’s standpoint. A further issue was that all clauses used had to be filed with the Regulator. It is doubtful if all the clauses used in the market today have been duly filed with the regulator.

The marine underwriters got together under the auspices of the General Insurance Council and decided on standardizing the wordings of some 28 non-institute clauses which all of them would use in the market. These clauses would be filed with the regulator on a common basis by the Council. Really, a wonderful initiative from the Council to ensure a semblance of discipline in underwriting of marine cargo where losses have overtaken premiums consistently, given the mindless push for top-line. Of course, there is the other school of thought which says an underwriter’s skill and judgement have been done away with and a ‘sort of Tariff wordings’ setting in. The idea of this post is not to sit in judgement on this issue but to take a critical look at the standardized clauses the industry’s best minds have come up with, from the standpoint of the assured. Before getting into the wordings, suffice to say that some of these clauses are wider than the normal non-institute wordings used in the market, while in some cases they are restrictive. Let us compare a few wordings:

Accumulation Clause (IND/NIC/2020/01) – Should there be an accumulation of interest beyond the Per Bottom Limits expressed in this Policy by reason of any interruption of transit and/or occurrence beyond the control of the Insured or by reason of any casualty and/or on connecting vessel or conveyance Underwriters shall be liable for the full amount at risk but in no event shall they be liable for more than twice the Per Bottom Limit. Well, the broad intent comes out that maximum liability will not exceed 200% of the limits stated in the policy.The use of ‘Per Bottom limit’ makes it appear that Accumulation clause will apply only in case of ocean voyages and not inland transit.Typically Accumulation clauses speak about ‘ Limits expressed in the policy”. Perhaps, since underwriters add a ‘Limit per Location’ as well as the Accumulation clause, the wording ‘Limits expressed’ is not used herein, as it could well be interpreted to mean twice the Limit per location.The larger issue is that most wordings of the Accumulation clause include ‘ accumulation at transshipping points’, which seems missing here. Although it can well fall under ‘beyond the control of the insured’, adding the transshipping points would have given greater clarity.

Airfreight Replacement / Charges Clause (IND/NIC/2020/02) – In the event of loss of or damage to the goods Underwriters are to pay the cost of air-freighting the damaged parts to manufacturers for repair and return, or the air-freighting of replacement parts from manufacturers and/or suppliers to destination .Notwithstanding that the goods lost or damaged were not originally despatched by air freight. Provided always that in no case shall the liability of Underwriters exceed 15% of value of item lifted by Air. The wordings are fine but limiting the underwriters liability to 15% appears an imposition.Some underwriters could restrict it to 10% or increase it to 20% or have a flat sub-limit expressed in Rupee terms. The wording appears to be a negative for assureds & even insurers, as the flexibility is gone.If one looks at the Concealed Damage Clause (IND/NIC/2020/04), though the wordings are standardised, flexibility is built in by leaving the ‘number of days within which packages are to opened’ blank. Why not a similar flexibility here?

Brands and Trade Marks Clause (IND/NIC/2020/03) – In case of damage to property bearing a brand or trademark or which in any way carries or implies the guarantee or the responsibility of the manufacturer or of the Insured, the salvage value of such damaged property shall be determined after removal in the customary manner (at the Insurer’s expense) of all such brands or trademarks or other identifying characteristics. The Insured shall have full right to the possession of all goods involved in any loss under this insurance and shall retain control of all damaged goods. The Insured, exercising reasonable discretion, shall be the sole judge as to whether the goods involved in any loss under this insurance are fit for consumption, and no goods so deemed by the Insured to be unfit for consumption shall be sold or otherwise disposed of except by the Insured of with Insured’s consent, but the Insured shall allow the Insurers any salvage obtained by the Insured on any sale or other disposition of such goods. This clause appears to be wider than the normal Brand clauses in vogue.It offers, apart from the conventional Brand & Trademark protection on damaged products, Control of Damaged goods & Fear of Loss as well. If you look at the words marked in Bold, this becomes apparent.’Goods involved in any loss’ is different from ‘Damaged goods’.In case of the former, insured will decide on its usability/consumption even if damages are not seen, though there is an incident which could give rise to a loss.This wording being so elaborate, do not see reason to have another clause styled Sale of Damaged Goods Clause (IND/NIC/2020/19).

Debris Removal Clause(IND/NIC/2020/06) – This Insurance is extended to cover, in addition to any other amount recoverable under this Insurance,extra expenses reasonably incurred by the Assured for the removal and disposal of debris of the subject-matter insured, or part thereof, by reason of damage thereto caused by an insured risk, but excluding absolutely (1) any expenses incurred in consequence of or to prevent or mitigate pollution or (2) the cost of removal of cargo from any vessel or craft.In no case shall the Insurers be liable under this Clause for more than ten per cent (10%) of the value of the damaged subject-matter removed. This clause is restrictive from the assureds’ standpoint. First, ‘removal and disposal of debris’ is left unexplained. Majority wordings used include clearly destruction & disposal of damaged goods, clean-up costs, shoring up, propping up, dismantling, demolishing, temporary protection of goods,and transfer of goods from one conveyance/location to another ( This is specifically excluded). Is it the intention that all these expenses which are not stated herein are not sub-limited to 10% of the damaged subject-matter but payable in full up to the value insured? Again, the flexibility in the sub-limit should have been maintained, as different underwriters view it differently.

Buyer’s Interest Contingency Risks Clause (IND/NIC/2020/08) – This Policy extends to cover the goods described therein subject to cover conditions and against the risk specified, but this extension covers buyer’s interest only in respect of any shipment of goods and merchandise purchased on a CIF (or similar) basis where the seller has undertaken to effect or who is responsible for effecting Marine and/or War Risks cover on the said shipment, and claims in respect of loss of or damage to the goods and/or merchandise shall be payable here under only if and to the extent that the seller fails to fulfil his obligations to provide insurance or if the insurance provided fails to pay a claim recoverable under the terms of the Policy. Only concern with these wordings which are for the benefit of an Indian importer is use of ‘and/or War Risks’. As per CIF or similar Incoterms, is seller bound to provide War coverage? Even if the contract specifies that War is to be covered, the seller fails to do so and there is a war claim ( very infrequent one might say), as per the Buyer’s Interest Contingency wordings, the buyer’s policy should pay the claim. This pre-supposes that the buyer’s policy has the Institute War clause attached & what compounds the matter further is higher War rates applicable for voyages from or through defined sensitive areas. So, how this clause will work in practice is not clear.

Dismantling and or Installation Clause (IND/NIC/2020/09) – It is agreed that if required, subject to prior notification to Underwriters and the payment of an additional premium which may be required, the insurance by this Policy may be extended to cover Machinery and/or Equipment from the time of commencement of dismantling and/or until the time of completion of installation at the final destination, but excluding loss or damage resulting from testing and/or operating. Certainly a clause which will be welcomed by assureds especially the ones who are bringing in new or used machines/ project machinery as it provides a seamless coverage extension. The need for a Storage-cum-erection cover is eliminated, save for the testing portion.Does this in any way violate the clause paramount, Cargo Termination of Storage in transit clause (Amended)? Perhaps GIC Re can comment.

General Average, Salvage & Special Charges Clause (IND/NIC/2020/12) – This insurance covers general average and salvage charges, adjusted or determined according to the contract of affreightment and/or the governing law and practice (or, if there is not contract of affreightment, according to Foreign Statement or to York-Antwerp Rules) incurred to avoid or in connection with the avoidance of loss form any cause except those specifically excluded here from. For the purpose of claims for general average contributions and salvage charges recoverable hereunder, the subject-matter insured shall be deemed to be insured for its full contributory value.General average deposits shall be payable on production of general average deposit receipts. The only area where greater clarity could have been provided is by adding after ‘the subject-matter shall be deemed to be insured for its full contributory value’, the words — ” with any claims arising hereunder recoverable in full irrespective of any deductible”.

Negligence Clause (IND/NIC/2020/20) – It is understood and agreed that this insurance covers in addition to the adventures and perils detailed in the body of the Policy all loss and/or damage arising from default and/or negligence of persons other than the Assured, but nothing in this clause shall limit or affect any rights which the Underwriters may have by subrogation or otherwise. This perhaps is the most important clause for an assured. It offers coverage over and above what has been stated as covered under the insuring clauses PROVIDED it is established that the loss/damage arose from the default/negligence of a third party other than the assured.

Seals Intact Clause (IND/NIC/2020/22) -( Appears twice, also as IND/NIC/2020/28) -In respect of shipments in containers, provided documentary evidence is produced to substantiate the quantity loaded into a container, seal is intact at the point of unloading shall not invalidate claims for theft, pilferage, shortage and non-delivery. Another clause which gives greater comfort to an assured.Normal clauses used state that this clause applies only in case of Full container loads, a limitation not specified here meaning this clause could apply for part loads as well. However some versions of this clause include ‘conversion’ too along with theft,pilferage, shortage and non-delivery, something missing here & its absence, an assured may feel does not offer total protection.

Claused Bills Of Lading Clause (IND/NIC/2020/26) – This insurance is not to be prejudiced solely by the reason of the marking of the Bill of Lading (or like document) with a clause indicating items insufficiently packed and/or by Ship owners limiting or nullifying their liability. A wider cover provided than what the normal Claused Bills of Lading clauses in use give.Cover will not be prejudiced by ship owners ‘ limiting or nullifying’ their liability is a big positive for assureds, as many of them attempt to put in conditions limiting their liability. The use of ‘and/or’ gives the impression that shipowners limited/nullifying liability not necessarily due to insufficient packing too is covered by this clause & insurers would not penalise the assured for non-protection of recovery rights.

Sorting Charges Clause (IND/NIC/2020/29) – In cases where Underwriters’ Surveyor has recommended that package be sorted to ascertain and assess the damage, the whole of the expenses of sorting shall be applied to the damage and shall be charged to the Underwriters and/or Insured in proportion to the number of damaged packages which fall upon them respectively. This clause severely impacts the assured negatively. Even without a clause by this name, sorting, testing, segregating charges are payable under the policy and there is no question of allocating these charges in the proportion of damaged and undamaged items or in other words between the insurer and the assured. What is more, some versions of this clause allow for sorting, segregation & testing wher loss/damage is suspected irrespective of whether a loss/damage is subsequently found.

Look forward to your views and comments, as the intent behind some of these clause wordings could be something else though they might have come out differently. In all such cases, the wordings could be tweaked to give wings to the intent and to ensure that all parties to the transaction understand it the same way.