The south-west monsoon will hit India soon. Everyone looks forward to good rainfall so that agricultural harvests are good which in turn will spur consumption and turn the wheels of manufacturing activities and drive the economy upward. More so, in times of economic recession brought about by Covid-19 and attendant lockdowns.
The marine cargo underwriter in India, however dreads the monsoon. As inland transit forms a substantial portion of the cargo portfolios of insurers, it is but natural that the underwriter has to put in safeguards to ensure that he is not literally flooded with rain-water damage claims. Goods like cigarettes, seeds, bagged cement, bagged rice, pulses,etc. see a spike in transit claims during the rainy season from water damage. There are instances of other items too where the cardboard cartons/packing get damaged due to rain-water resulting in non-acceptance of the goods by the buyer or dilution in the saleable price.
So what are the options open to an underwriter —
- Either he can, by a manuscript wording exclude damages caused by rain-water from the scope of cover under an All-Risk policy (which does not exclude such damages).
- Instead of totally excluding damages caused by rain-water, which will not be acceptable in the market, the underwriter can insert warranties/conditions in the policy making the assured responsible to take preventive steps to minimise the possibility of rain-water damage to the goods during transit.
However, some underwriters word their warranties in such a way, that the camouflaged meaning can be interpreted to be ‘ total exclusion of damages caused by rain-water’. Before looking at the wordings used and the meanings, let us understand what a warranty is.
Warranty is defined in Section 33 of the Marine Insurance Act as an undertaking by the assured that
1) some particular thing shall or shall not done
2) some condition shall be fulfilled
3) affirms or negatives the existence of a particular state of facts.
Non-compliance of a warranty, whether it be material to the risk or not would discharge the insurer from liability.
In essence, it means that the assured confirms that he will do/will not do something which the insurer directs him to do /not do or he confirms a pre-condition or confirms a particular state of facts during the currency of the policy. All this implies that the act/condition is within the assured’s control.
Now see the wording used by some insurers in the warranty for covering trucks with tarpaulin —
“WARRANTED that goods are transported in closed wagons/ trucks or the wagons/trucks to be covered with tarpaulin or any other water-proof material to avoid ingress of water.”
As there are numerous instances where the word ‘warranty’ is erroneously used instead of ‘condition’ in policies, let us examine if the above meets the requirement of a warranty. Yes, it does because ‘ it is a direction to the assured that the wagon/truck carrying his goods (unless close-bodied) should be covered with water-proof material. The problem lies in the portion in RED — ‘ to avoid ingress of water’. Covering with ‘ water-proof’ material or not is in assured’s control and hence the insurer warrants that he must ensure it is covered. If assured does not comply with the same, insurer will be free from liability, and rightly so. However, the ‘tail-end’ words– ‘to avoid ingress of water’ makes this warranty bad in Law. Ingress of water is not within assured’s control and despite complying with the warranty of covering the wagon/truck with water-proof material, if there is ingress of water, the assured will be deprived of his claim, as the wording of this warranty simply states that the assured should avoid ingress of water. In short, cover against rain-water damage is excluded under the policy whether the wagon/truck is covered with water-proof material or not.
Please have a look at some other warranties widely used by cargo underwriters all across the world and draw a parallel with tarpaulin warranty used by some in India.–
WARRANTED loading and lashing supervision by named surveyors for all over-dimensional cargo ( as defined under the policy)
It does not say WARRANTED loading and lashing supervision by named surveyors for all over-dimensional cargo ( as defined under the policy) to prevent the cargo from falling off the carrying conveyance.
WARRANTED packing in double gunny bags
It does not say WARRANTED packing in double gunny bags to avoid spillages,spoilage of material due to cuts in bags.
Now, the question if the wording used in the tarpaulin/water-proof material cover has actually been used by the insurers to deny rightful claims. So far, no, but attempts have been made highlighting the warranty wording to push the assured towards a negotiated settlement at a lower amount. In case of very high value claims due to rain-water damage, this warranty in the form narrated above can lead to negation of claims and protracted litigation , notwithstanding that the assured had covered the truck/wagon with water-proof material .
Insurers may re-look the wording of this warranty and if their intent is not to cover rain-water damage, they may do so with a clearly worded exclusion in the quote and inform the assured accordingly so that he may decide if he would like to go ahead with the cover or not. Till then, buyers beware!
We do not wish the rains to go away, let there be rains, let there be underwriting precautions, let there be risk management/loss control from the assured, BUT let confusion/camouflage in the warranty wordings go away.
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In most cases insurers wish to exclude losses due to water damage unless the assured has taken adequate precaution. So they resort to various wordings and often make it sound like exclusion if read and interpreted as stated. The problem is compounded by clients using tarpaulins which are already cut and torn. There are also instances where the insurer wishes to exclude losses like ROD and dampness but end up excluding almost all types of water damages including rain water. Although this is in defence of the marine underwriter who often finds the English language more difficult to manage than the clauses themselves. Yes, I agree we need clearer wordings but I can assure you the client and broker and client will not be satisfied with anything but a policy without any exclusion.
Always a treat to read and provokes me to respond… Bala is the Boss!
Simple point is ‘ avoiding ingress of water’ is not in insured’s hands and hence cannot be warranted against. Yes, insurer can warrant that you use double tarpaulins or any other specification if so desired and which is practicable to the insured. I think the premise insurers have is that without this warranty, insurers will send their goods in open trucks, exposed to the elements which is far removed from reality.
We have indigenised marine insurance to suit our market. There used to be overloading warranty too or may be still in practice.