Some interesting cargo clauses -III

This is the concluding post in the series on ‘Some interesting cargo clauses’.Some of them may be  a bit loosely worded, some may sound cosmetic & not aligned to reality, while underwriters may feel that some clauses could lead to large claim exposures and hence need to be appropriately priced. No two opinions about all these observations, each one of them is valid. Typically,there could have been claims, when a part or the whole could not be paid (because of the circumstances or nature of loss/damage,) within the ambit of the insuring policy conditions. This would have prompted brokers to plug these gaps  by way of ‘Broker-worded clauses’. Many of them have met with underwriters’ approval as well, so much so, that the ‘interesting clauses’ discussed in this series form part of the pre-agreed policy conditions in many ‘Facilities’ given to brokers.

Many a time we come across losses (damages too, although rarely) especially in case of high-value, low-bulk cargo like mobile phones, play-stations & other electronic gadgets — a few numbers missing, though there would be evidence available to show that the imported consignment landed in sound condition without any evidence of tampering to the container seals or the packing within. Some of the packages could be opened for Customs examination and at this point possibly some shortages take place out of the opened packages. What is more, taking advantage of the opened packages, further shortages could result from subsequent handlers of the cargo before it reaches the final destination. While damages are not frequent, there is always the possibility that during Customs examination, a costly electronic equipment falls down and suffers damages, no one would own up to it and the damaged item would quietly go back into the package. Where does this leave the assured who receives the damaged goods or fails to receive the total number of pieces transported? He may lodge a claim on his insurer who would obviously state the supporting documents show that the numbers shipped equal the number delivered and there are no  documentary evidence of damages either. Always a tricky situation. If the policy carries the  CUSTOMS CLAUSE, any loss/damage caused by the Customs/agents of Government agencies in the course of their duties of examination or even if they act beyond their legitimate authority, such losses/damages would be indemnifiable. The clause reads as under:

” Coverage hereunder includes loss and/or damage caused by the actions of Customs Authorities/Agents in the course of their inspection duties.
Coverage also includes loss and/or damage caused by Customs Authorities or
Government Agencies acting outside the scope of their legitimate authority, and any additional costs incurred by the Assured to recover the goods”

The next clause we discuss is the APPORTIONMENT OF RECOVERIES CLAUSE, something which is understood( deemed to be understood) and also echoed by the Marine Insurance Act, 1906. Yet the principle is not always followed in practice and hence, perhaps the need to add this clause to policies to draw the attention of the insurers.

“Recoveries relating to claims which are subject to the application of a policy deductible and/or other layers of cover in respect of the insured risk, the recovery monies realised, nett of expenses, are to be apportioned between the Assured, underlying Insurers, excess Insurers and/or the Assured as self insurer, in accordance with the amount each has borne for their own account in respect of the loss and/or damage.”

In simple terms , all it says is that if the assured is ‘self-insured’ for a portion of the claim due to a deductible or if there are multiple insurers/reinsurers, any recoveries made after the claim settlement, net of recovery expenses, have to be apportioned proportionately between all the parties who have borne potions of the claim amount. The primary insurer cannot retain all the amounts recovered.

The next clause is perhaps important in the current context in India, where any intentional storage under a marine cargo policy stands abolished by the GIC Re by insertion of the Cargo Termination of storage in transit clause ( Amended). There could be genuine storage requirements for certain clients and because of the cited clause, the assureds do face problems when this bit of intentional storage is part of their normal business requirement. To cite an example, some clients sell goods on consignment basis to their clients, who take time to approve the same before concluding the sale,with the goods lying at the customers premises till that time but the financial interest in the goods resting with consignor(Assured). This is typical of hospitals who buy  considerable numbers of small equipments on consignment basis. Also, there could be instances when assureds send their goods ( mainly equipment/machinery) on loan to others for short periods, with the financial interest resting with the assured as per contract. These are genuine business requirements which this rather draconian clause prohibits from covering. If the assured was to look at Property cover for such cases, it would neither be practical nor would many insurers be ready to underwrite the same, with small values and shorter periods. The insertion of the the GOODS HIRED OUT AND ON LOAN CLAUSE may come in handy as it covers the subject-matter whilst in transit or otherwise, awaiting approval of the receiver/return from the receiver.

” Including on contract conditions, the subject-matter insured whilst on hire or loan or held by customers or potential customers on approval or on consignment or otherwise, the subject-matter being covered at all times, whether in transit or otherwise, whilst away from the Assured’s premises.”

Possibly it may still be debated that even without the clause, consignment sales awaiting approval could be covered as in the ‘ordinary course of transit’, since delivery as stated in ICC-2009 does not technically take place till approval and acceptance. Fact is in many cases, the consignee starts using the subject-matter and only if satisfied, gives approval and converts the transaction to a sale. Can it be then interpreted as physical delivery taken and cover terminated under ICC-2009? Views welcome.

LOSS OF DOCUMENTS CLAUSE: 

” Cover hereunder includes all costs and expenses, necessarily and reasonably incurred by the Assured in reinstating any documents of title, carriage or other documents necessary to the satisfactory completion of the transit which may be lost, damaged or destroyed.
Insurers liability under this clause shall be limited to _______ any one claim and in
the aggregate for the contract period in addition to policy limits contained herein.”

This technically does not relate to physical loss/damage to the subject-matter during transit. However this can form part of a marine cargo policy covering the subject-matter. If any of the documents of title, carriage or otherwise related to the transit is lost, damaged or destroyed, by insertion of this clause under the policy, costs and expenses incurred by the assured to replicate or otherwise reinstate the documents would be reimbursed to the assured. This clause is always issued with a sub-limit. The subject-matter insured may or may not be damaged/lost.