The Swashplate case

A recent judgement of the Federal Court of Australia caught my attention. It was the Swashplate Pty Limited vs Liberty Mutual Insurance Company Limited case, popularly called “The Swashplate case”. The Court in its judgement brought out two very important aspects, which every marine insurance practitioner should take note of :

1) An interpretation of Clause 4.3 of the Institute Cargo clauses -2009

2) The importance of defining the time when the cover under the policy would commence.

Brief facts of the case: Swashplate Pty Ltd, Australia had purchased two Bell 427 helicopters in the USA and transported them in containers (by sea) to Australia. Two specific marine cargo insurance policies were issued by Liberty Mutual Insurance Company in Australia covering the two separate shipments. The ‘chocking’ of the helicopters’ temporary wheels inside the containers was not done in both cases.. Hence the stowage was inappropriate and fell within the ‘improper stowage’ exclusion of Clause 4.3. Both the shipments suffered damages because of this and claims were lodged on Liberty by Swashplate. Surprisingly, Liberty admitted the claim for one helicopter and rejected the claim on the other. No, it was not a compromised settlement or a commercial settlement but based on technicalities. Aggrieved, Swashplate approached the Federal Court of Australia, which upheld the decisions of Liberty Mutual. So, was there a difference in the two shipments, even though it has been stated that improper stowage in the containers was common in both the instances?

The insurance placements were done in Australia for both these policies and the placement slips showed the policy commencement date as 19th May 2018 till the arrival at Sunshine Coast, Queensland. The transits were to commence from Picayune, Mississippi in the USA. Incidentally, Picayune was 15 hours behind Australian Eastern Standard Time, the location where the policies were issued.A chronological sequence of events will help understand the factual position.

19th May 2018 — Two specific policies issued in Australia covering the two helicopters from Picayune in USA to Sunshine Coast, Australia. Policies were on ICC-A terms including static cover for up to 5 days prior to loading.

18th May 2018, 3 PM Local standard time at Picayune: It may be noted that 3 PM in Picayune would mean 6 AM of 19th May 2018 in Australia (AEST). The container arrived to load the first helicopter. Stuffing into the container was completed, although chocking was not done and by 5 PM, the container was loaded on to a truck and sent to the port of loading, New Orleans.

19th May 2018, 8 AM Local standard time at Picayune: This would translate to 11 PM AEST on 19th May 2018. The container arrived for loading of the second helicopter. Stuffing into the container was completed, again, chocking was not done and by 5 PM, the container was loaded on to a truck and sent to the port of loading, New Orleans.

As stated earlier, both the helicopters were damaged in transit. Liberty settled the claim on the second helicopter and rejected the first. Both losses were due to insufficiency of packing/inappropriate stowage in a container. The wordings of clause 4.3 are as under:

In no case shall this insurance cover.

4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors).

Here packing was not carried out by the Assured or their employees. So Swashplate argued that packing was done ‘after attachment of the insurance’ to avoid the exclusion under 4.3. The argument hinged on the fact that 19th May 2018 would refer to the date in Australia(AEST) and not in Picayune, USA. Further, it was argued that policy provided for 5 days static cover prior to loading and hence the policy had incepted on 13th May 2018.

The Court agreed with the contentions of Liberty that contractually, 19th May 2018 would mean from 12 AM of 19th May 2018 in Picayune, USA (LST). Further the wording on static cover extension was ‘ up to ‘ five days prior to loading and this does not mean a back-dating of cover even before the date the cover was finalised. Since loading of the first helicopter was completed by 5 PM on 18th may 2018, i.e.prior to attachment of cover, Exclusion 4.3 would apply. In case of the second helicopter the packing was done after the attachment of insurance i.e. 10 AM on 19th May 2018, LST Picayune.

This judgement drives home the fact the importance of arranging transit insurance well before any work on packing starts and the necessity to clearly spell out dates and time when working across different time zones, so that there is no ambiguity.