Risk of contamination in transit

The word ‘Contamination’ originates from the Latin word ‘contaminat’ meaning ‘made impure’. In other words, contamination can be defined as the presence of a foreign body, substance,chemical, etc in something (where it ought to not to be present) making it impure. Let us define that ‘something’ to be the subject-matter of insurance in transit. Contamination can occur in solids, liquids and even gases( when transported in liquid form under pressure), but here we restrict ourselves to contamination of liquid cargo transported in bulk.

The severity of contamination and whether the liquid cargo can be reprocessed/ refined or sold for alternate use at a lower price will vary from case to case, but the reason for contamination in transit can be only one i.e. entry of a foreign material(s) into the subject-matter insured. This can happen in many ways– a) The pipelines connecting the shore-tanks to the vessels, at load-port/discharge port could have impurities/contaminants. b) The ship’s tanks may not have been properly cleaned and the remnants of the last cargo carried ( if different) could lead to contamination of the subject-matter. c) Errors in opening/closing valves of adjacent tanks carrying different material or accidental damage to tank-walls can lead to different cargo getting co-mingled. d) Accidents leading to ingress of water ( sea-water or fresh-water)  into the cargo tanks. e) At times the receiving tank might have contaminants and if the subject cargo is top-loaded, it too can get contaminated, which will get revealed when the surveyor checks for quantity and quality of the material received.

Coming to the question of coverage of contamination risks, often there is a doubt if ICC-A offers cover against the risk of contamination or not. It does not fall under any of the named exclusions and hence, being an ‘All-Risks’ cover, stands covered. Having said that, there are two aspects to be considered  1) Many insurers add a manuscript exclusion, excluding contamination, howsoever caused. Draconian for sure!. Some use the added wording “Excluding contamination unless caused by an ICC-C/ICC-B peril”. There are others who use ” Excluding contamination unless caused by accidental, external, means”. 2) Many a time, it becomes difficult to establish that the contamination happened during transit, given the numerous clean reports submitted by independent,professional agencies. Often this points to a contamination at the manufacturing storage  or storage prior to inception of the transit.

Having seen the possible reasons for contamination and the need for covering the same during transit, is it safe to simply rely on ICC-A and  impress upon the insurer not to add any manuscript condition or opt for the Institute Bulk Oil clauses, wherein contamination is clearly stated as ‘covered’ as these clauses have been framed, realizing that this is a particular risk associated with transporting liquids in bulk? My submission will be to use ICC-A clauses any day, with appropriate manuscript wording added to give comfort to the insurer. Excluding contamination will not be acceptable to the insured. Again, “Excluding contamination unless caused by an ICC-C/ICC-B peril” does not provide complete protection to the insured against contamination of his cargo in transit. Many of the broad reasons for contamination, listed out in Para 2, do not figure in the list of named perils under ICC-B or C. Hence the manuscript limitation to ICC-A stating ‘ Excluding contamination unless caused by accidental/fortuitous external means” looks reasonable to both the insurer and the insured.

Why not the Institute Bulk Oil clauses, one may ask? It must be noted that these Trade clauses were created specially for the bulk oil trade. It recognizes that liquids in bulk cannot be ‘damaged’ but can only be ‘lost’ or ‘contaminated’. Hence the wording used is ‘ Loss or contamination‘ unlike in ICC where the wording is ‘Loss or damage’ applicable to all types of cargo in transit. Further, Institute Bulk Oil clauses were apparently considered superior when liquid cargo in bulk was usually granted only ICC-C or B cover by insurers. It covers contamination if caused by named perils which are the same as listed in ICC-B except for one. Entry of sea, lake or river water into the vessel contaminating the cargo is NOT COVERED though it is a peril listed under ICC-B. The additional circumstances under which the Bulk Oil clauses would cover contamination are:

• If caused by LEAKAGE in connecting pipelines during loading, transshipment or discharge.
• If caused by NEGLIGENCE of Master, officers or crew in pumping cargo ballast or fuel.
• If caused by stress of weather.

The onus of proving that the contamination happened because of any of the named perils covered, rests with the insured. As stated earlier, establishing a cause and effect can prove difficult from an insured’s standpoint.Further the Duration clause under Institute Bulk Oil clauses limits the number of days after arrival of the vessel to 30, before which the cargo should reach the intended tanks.

In transportation of liquid cargo in bulk, strict adherence to Standard Operating Procedures and use of external agencies at different stages for sampling, testing and quantifying the cargo can never be over-emphasised. In the final reckoning, it will be ICC-A clauses for use in case of transportation of liquids in bulk with appropriate and reasonable manuscript limitations/boundaries plus warranties for supervision, sampling, testing by qualifies external agencies.