Storage extension for liquid cargo

Movement of liquid cargo in bulk has its own set of challenges like contamination, shortages, etc. A larger issue is that, unlike in case of containerized cargo, which is more compact and can be easily and quickly stored/moved at/from the port/CFS, liquid bulk cannot be moved from the port to the final destination seamlessly. This is primarily due to the large volume which an ocean tanker discharges and the absence of sufficient road tankers/rail tankers to move them onwards quickly. Further, many a time, the importer may not have sufficient storage space in his factory tanks or if he is a trader who sells ‘ex-tank’, the shore-tanks at the port could well be the final destination.

This is equally true of dry bulk cargo too, in fact, more pronounced. The cargo discharged at the port cannot be moved in many cases to the final destination within the time frame of the Duration clause in the ICC.There is a a large element of storage risk at the port which creeps in. Given the Cargo Termination of storage in transit clause ( Amended) prevailing in India, no intentional storage can be covered under a marine cargo policy. Is there a way out then for the instances cited above? Well, the Cargo Termination of storage in transit clause ( Amended) provides for extension of the Duration clause timeline of 60 days to 120 days. Certainly not the right solution because any extension of the ’60 days period’ of the Duration clause, in my view, will apply only if the cargo is still in the ‘ordinary course of transit’ i.e. outside insured’s control. The aspect of whether it is an ‘intentional storage’ or the cargo is till in the ordinary course of transit gets blurred and in case of very large losses involving overseas reinsurers, this condition with its extension of Duration clause could be put to test.

The London market has recognized this requirement and come out with two specific clauses CL 434 & CL 435 to address the storage requirements in case of liquid bulk cargo. Why only liquid bulk & not dry bulk, one may ask? Possibly because storage of liquid bulk is always in covered tanks, well protected and secured unlike dry bulk, which in many cases is stored in the open and exposed to the elements. Going forward, suitable clauses can well be developed for storage of dry bulk too. The Liquid Cargo Storage Extension clause- CL 434- 01/08/2019 reads as below:

‘Subject always to the terms, conditions and exclusions of this clause and in consideration of an additional premium, this insurance is extended to cover the subject-matter insured whilst stored, outside the ordinary course of transit, in floating or land tanks, vessel or craft, or during customary storage operations, whether or not the subject-matter insured has been insured for any transit under this insurance.

The subject-matter insured shall be covered:
(a) against all risks of physical loss or physical damage covered under the Institute Cargo Clauses (A) (CL382) or the Institute Bulk Oil Clauses – All Risks (CL434), as applicable, but excluding any claims for unexplained shortage, mysterious disappearance, stocktaking losses, unexplained loss in weight or any claim arising from Misappropriation

Misappropriation shall in this extension be deemed to mean the unauthorised conversion use release or disposal of the subject-matter insured at or from a floating or land tank, vessel or craft, or during customary storage operations, whether on or offshore, stored otherwise than in the ordinary course of transit, by or with the knowledge of the bailee or of any other person or entity including their officers and employees to whom the subject-matter insured has been entrusted.

(b) against physical loss or physical damage caused by perils covered under the Institute War Clauses (Cargo) (CL385) save that there shall be no cover for on-land storage
(c) against physical loss or physical damage caused by perils covered under the Institute Strikes Clauses (Cargo) (CL386), save that, in respect of on-land storage, there shall be no cover for loss or damage caused by any terrorist or any person acting from a political motive

Cover is to attach at inception of this insurance or termination of the transit cover, whichever is the later, and terminates on the expiry date of this insurance in respect of all goods in store at that time.

Claims shall be subject to an excess of ……………. each and every loss.
This insurance is subject to English law and practice.’

Crux of the clause:

• The transit cover could be on Institute Cargo clauses or Institute Bulk Oil clauses.
• On payment of additional premium, storage OUTSIDE the ordinary course of transit i.e. INTENTIONAL STORAGE stands covered.
• The storage can be in any land tanks, floating tanks, on any vessel or craft ( Refer Oil oil everywhere….). It can also be part of any customary place of storage, whether or not, the subject-matter was insured for transit or not.
• Cover during storage will be in line with insuring transit clause i.e. Institute Cargo clauses or Institute Bulk Oil clauses.
• Exclusions would be unexplained shortages,mysterious disappearance, losses discovered during stock-taking (inventory losses), unexplained loss in weight & misappropriation.
•  War risk cover will be available too, if Institute War clauses are attached to the policy, provided the storage is NOT on land.
• Similarly if policy is subject to Institute Strikes clauses, cover as per the same will be available. However, Terrorism cover during land storage will be an exclusion.
• Cover can commence on termination of the transit too, which means the storage could be at the final destination.

If risk is  assessed well and priced right, this clause can be a win-win for both insurers and the assureds. A pertinent requirement of assureds is addressed without any ambiguity in coverage.

CL 435 ( Liquid Cargo Storage Extension Clause (Including 45 Day Misappropriation) is a wider form of CL 434 in that the exclusion of ‘ Misappropriation’ during storage is carved back subject to the following conditions:

‘The subject-matter insured shall be covered:

against physical loss or physical damage arising from Misappropriation subject to the loss or damage having occurred not more than 45 days prior to the date of its notification to Insurers and shall in any event be subject to an annual aggregate limit as stated in the Schedule to this insurance.

Misappropriation shall in this extension be deemed to mean the unauthorised conversion use release or disposal of the subject-matter insured at or from a floating or land tank, vessel or craft, or during customary storage operations, whether on or offshore, stored otherwise than in the ordinary course of transit, by or with the knowledge of the bailee or of any other person or entity including their officers and employees to whom the subject-matter insured has been entrusted.’

If CL 435 is used, misappropriation which will include wrongful delivery of cargo to an unintended person(s) done on the basis of forged documents PROVIDED the bailee or their employees/officers are involved. Both these clauses have been drafted keeping in mind a genuine requirements of the assured and not to limit or restrict the risk of the underwriter. If sold and bought judiciously, these clauses will add critical value to the supply chain of liquid cargo in bulk.