Some interesting cargo clauses -II

A bit of a time lag in between, but here we continue from where we left off Some interesting cargo clauses – I.  Time to discuss 4 other interesting but not frequently used clauses in this post.

When one hears about the DENIAL OF ACCESS CLAUSE, the first thought is that it applies to Property policies where it is quite commonly used. If the assured  is denied access to the premises insured for a stated period of time because of operation of an insured peril, the policy would get triggered. This is notwithstanding the fact that the insured property itself is not affected by the peril. Can this be clause be used under a marine cargo policy? Yes and the wording could be as under:

” It is understood and agreed that should the Insured be denied access to subject-matter insured hereunder for a period in excess of 30 days, as a result of damage to the premises and/or conveyance in which it is held, such subject-matter insured which cannot be retrieved shall be considered a total loss under the terms of this insurance contract.

Any salvage from subject-matter insured as described above shall be for the benefit of Insurers”

So, technically, if the insured cargo is in a warehouse (say on a higher floor) during the ordinary course of transit and if access is blocked due to floods for a period exceeding 30 days (or any agreed period), but the the insured cargo is not damaged (being on a higher floor), still the marine cargo policy would trigger because assured could not reach his goods.Similarly, if a vessel carrying the cargo insured is stranded on some rocks and could not be reached because of continuous rough weather, this clause would get triggered. Claim could be under ‘stranding’ if the cargo is damaged, certainly but what if the cargo is sound but only cannot be accessed? This clause comes in handy. Interestingly, this clause only makes what is stated under Section 60 of the Marine Insurance Act ( Constructive Total Loss) more apparent. If a Constructive Total Loss, then I presume that Notice of Abandonment from the assured would be necessary before claims cannot be settled under this clause. If a vessel carrying the insured cargo is say hijacked by pirates and held in some remote location, will this clause get triggered? Possibly no, because the phrase used is ” damage to the  premises and/or conveyance”. Could be debatable.

What if an insured cargo is rejected/refused in the first instance for not meeting certain specifications? Any assured would make all reasonable efforts to try and establish that the cargo is in line with specifications and ought not to be rejected. If the policy carries the REJECTION/REFUSAL EXPENSES CLAUSE, the additional expenses incurred by way of freight, storage, testing, retesting,dismantling, re-assembling, expert opinion, etc. to ensure that the cargo is finally accepted, is reimbursable under the policy. This clause always comes with a sub-limit typically on AOA:AOY basis. In some cases, it is clearly stated that this limit is over and above the policy limit. A typical wording of this clause will read as under:

” This insurance covers additional expenses incurred to ensure final acceptance of
shipments insured hereunder which are rejected and/or refused. Including, but not limited to, costs of freight, storage, testing and/or retesting, dismantling and/or reassembly or reestablishment of specifications.
Notwithstanding the above, this insurance is warranted free from claims resulting from:
(a) product liability
(b) pollution liability
(c) rejection resulting solely from financial, economic or pure commercial
reasons
(d) delivery of the wrong product
(e) contractual penalties
(f) loss of market
Insurer’s liability under this clause is limited to ________ any one claim and in the aggregate for the contract period in addition to the policy limits contained herein.

This clause should not be confused with Rejection risk insurance. Rejection risk provides coverage against rejections by Government authorities/agencies due to the insured cargo not meeting certain pre-agreed/pre-defined protocols.What is more, the breach of the protocols could well be pre-shipment and in certain cases of meat exports, even pre-slaughter in nature. The loss compensated could be the total value of the shipment, should the Government order it to be destroyed or the difference in price should the rejected cargo be sold for other purposes/or in alternate markets. The REJECTION/REFUSAL EXPENSES CLAUSE chips in earlier after the preliminary rejection to convince the authorities with evidence that the shipment ought not to be rejected. The expenses incurred for this purpose are reimbursable provided the shipment is ultimately accepted.

Two clauses for which there could be genuine requirements & demand but attendant difficulties too in implementation/assessment are taken up together : 1) CONSEQUENTIAL LOSS CLAUSE 2) SUPPLY CHAIN DISRUPTION CLAUSE.

Again, one can relate to a Consequential loss in case of Property insurance and under Marine DSU whilst a project is underway, but under a marine policy for a business which is operational? There is always the odd request but not serious enough to structure a solution from the underwriter’s side or consider paying a sizeable premium from the proposer’s side. Having said that, such wordings do exist in the international market. This provides coverage for consequential financial losses incurred by the assured following cancellation of the contract by the assured’s customer. When? If there is a loss/damage to the subject-matter. This loss will be payable under the cargo policy if caused by an insured peril, even without this clause. The addition of this clause possibly provides coverage against contractual penalties. There are other circumstances contemplated when this clause would get triggered and a policy without this clause would not respond — DELAY arising out of any perils stated under ICC-C or if there is a delay due to certain stated perils including Denial of Access. In the last 2 instances, the cargo will be intact, so is it that when claim is settled under this clause, the rights in the sound cargo will be subrogated to the insurers? Clean-up costs mandated by any pollution legislation is an exclusion & this clause is always with a sub-limit.

” This Policy includes cover for Consequential and/or Financial Losses incurred by the Assured, including those incurred as a result of the cancellation of a contract by the Assured’s customer or under contract, either:
a) Following loss or damage to the subject-matter insured under this contract
b) As a result of delay to the subject-matter insured whilst in transit caused by the
carrying vessel, aircraft or conveyance suffering loss or damage as result of:
i) fire, lightning or explosion
ii) stranding, grounding, capsizing or sinking
iii) collision or contact of vessel, craft or conveyance with any external object
other than water
iv) general average
v) any accident or incident involving the land conveyance

c) As a result of delay in delivery due to:
i) closure of any transport route following accident, fire, flood, or act of God
ii) lack of access to any port, airport or terminal howsoever arising for a period
in excess of 7 days
iii) act of piracy
iv) any claim arising under the Denial of Access Clause (Clause 34)
Insurer’s liability under this clause is limited to ___________any one claim and in the aggregate for the contract period in addition to the policy limits contained herein.
However cover in respect of losses incurred under contract by the Assured is subject to a first Loss Limit of ________any one Loss and/or in the annual aggregate.
Subject to an excess of ________each and every claim.
Nothing contained herein shall be construed to cover any clean up expenses for which the Assured may be liable under any pollution statute.”

The SUPPLY CHAIN DISRUPTION CLAUSE is but a small modification of the CONSEQUENTIAL LOSS CLAUSE. This clause comes into play, in case of goods having seasonal marketing or sales dates. If the goods do not reach the intended market place  even after 30 days of the season ending due to delay of any nature howsoever caused, the  assured will be paid the difference between the original contract price and the price the goods fetch on subsequent sales.

” Other than as detailed within the Consequential Loss Clause (Clause 17), if, as a result of delay whilst in transit due to any other reason beyond the control of the Assured, the subject matter insured fails to arrive at their intended market place for a period of more than 30 days after the Assured’s seasonal marketing/sales date(s), insurers will pay the difference between the original contract sales price and the value realised on subsequent sale.
In the event of such loss, the Assured shall make all reasonable efforts to mitigate and/or reduce potential loss hereunder and shall endeavour to sell such goods at the best possible realisable value and in all circumstances shall provide all necessary documentation to substantiate their seasonal marketing/sales date(s).
Insurer’s liability under this clause is limited to GBP350,000 any one claim and in the aggregate for the contract period in addition to the policy limits contained herein.
However cover in respect of losses incurred under contract by the Assured is subject to a first Loss Limit of _______any one Loss and/or in the annual aggregate.
Subject to an excess of _______each and every claim.
Nothing contained herein shall be construed to cover any clean up expenses for which the Assured may be liable under any pollution statute.”

A note of caution to assureds, insurers & brokers – Before seeking or providing any of these clauses, please have total clarity on the circumstances when they will come into play and more important, how losses will be computed.