Ukraine war & marine cargo insurance

The whole world watches with bated breath as Russian troops which invaded Ukraine continue to face resistance. Diplomatic parleys are on, even as civilians flee the country in hordes. Although exact numbers are not made available ( will never ever be), suffice to say that casualties on both sides should be high including a sizeable number of civilians. The damage to property, arms & ammunition, apart from the opportunity cost in terms of time, money and people lost would add up to astronomical sums.

We confine our discussion here on the possible impact this war has/will have on cargo owners and cargo insurers. Cargo owners here can be of three categories — 1) Those who do not have open policies/open covers but may have export orders to Russia/Ukraine for which they may seek cargo insurance. 2) Those who have open policies/open covers on a worldwide basis but as of now do not have any transit exposures to Russia/Ukraine. 3) Those who have open policies/open covers on a worldwide basis and have shipments to Russia/Ukraine which were sent before the war broke out and had not reached the destination yet.

Cargo owners falling under (1) will obviously find it difficult/if not impossible to find insurers willing to cover transits in the near future to Russia/Ukraine. The exporters themselves may not ship the cargo or even their orders might well have got cancelled. No problems here from the insurance standpoint. Cargo owners falling under (2) may again not ship the cargo or their orders might have got cancelled. If at all, they dare to send a shipment, ( PURELY THEORETICAL), a very BIG ‘If’, cover under their open policies/open covers should continue including war risks ( if they had opted for the same), since Indian market has not yet issued notices of cancellation of war risks in respect of shipments bound to/from Russian/Ukrainian ports. It may be recalled that following the decision of GIC Re, all cargo insurers in India had declared shipments to/from a list of named ports in the Middle-east as High Risk and stated that War & strikes cover for such shipments would not be available but can be bought separately on payment of additional premium. This is not withstanding that the open policies/open covers were subject to Institute War clauses ( Cargo), meaning that War risk would remain in force for shipments around the world EXCEPT from/to these named ports. It is pertinent to note here that the Joint War Committee in London has, in February 2022 included ‘ Ukrainian and Russian waters in the Black Sea and the Sea of Azov’ to the list of High-Risk areas for which War cover will not be available as a matter of routine but have to be specifically negotiated on individual contracts. However, some Indian insurers have already added Ukraine and Russia to the list of sanctioned countries under the Sanction Limitation & Exclusions clause, which tend to be overarching

The biggest problem pertains to cargo owners under (3) whose cargo has not reached the final destination in Russia/Ukraine. They are anxious as to whether they are covered for insurance or not consequent to the outbreak of war. As stated in preceding paragraph, till there is a specific notice of cancellation or inclusion of ports in Russia/Ukraine to the list of HRAs, exporters/importers insured with Indian insurers will have War risks covered. Should there be a loss/damage to cargo whilst at sea due to war perils, claim, if any would be tenable.

The issues faced by Indian cargo-owners ( exporters) is different. Vessels which set sail from India are unable to reach Ukrainian/Russian ports close to the war zone and are discharging the cargo at ports in the nearest countries. The question in the minds of cargo owners is, 1) whether cover continues under their cargo policies ( as this act of the shipping companies is beyond the insured’s control) 2) whether the additional expenses incurred in bringing the cargo back to India is payable under Forwarding charges or under Minimizing Losses – Duty of Assured ( Clause 16) of the Institute Cargo Clauses-A

No doubt, the cargo is outside insured’s control but if the shipping company terminates the contract of carriage at any port other than the named destination port, then cover under the policy would also terminate therein as stated in Clause 9 – Termination of contract of carriage, which reads as below:

‘ If owing to circumstances beyond the control of the Assured either the contract of carriage is terminated at a port or place other than the destination named therein or the transit is otherwise terminated before unloading of the subject-matter insured as provided for in Clause 8 above, then this insurance shall also terminate unless prompt notice is given to the Insurers and continuation of cover is requested when this insurance shall remain in force, subject to an additional premium if required by the Insurers’.

So prompt notice to insurers is a must to continue cover. How long can the cover continue at the discretion of the insurer and subject to terms and conditions? The outlines are spelt out in 9.1 & 9.2:

9.1 -until the subject-matter insured is sold and delivered at such port or place, or, unless otherwise specially agreed, until the expiry of 60 days after arrival of the subject-matter insured at such port or place, whichever shall first occur, OR

9.2– if the subject-matter insured is forwarded within the said period of 60 days (or any agreed extension thereof) to the destination named in the contract of insurance or to any other destination, until terminated in accordance with the provisions of Clause 8 above.

A careful reading of the said clauses make it clear that extension/continuation of cover will be at the discretion of the insurer for which a prompt notice is a pre-requisite. So, if the contract of carriage is terminated at any port other than destination port, subject to prompt notice and acceptance by the insurer on suitable terms & conditions, the cargo coming back to India can be covered under the policy. Note the wording used in 9.2 –‘ subject-matter insured is forwarded…………. to the destination named in the contract of insurance or to any other destination..’

Next question arises — Can the cost of freight incurred ( which is quite high right now) in bringing back the cargo from the port where it is discharged, back to India be claimed under Forwarding charges? My submission is NO, since the wordings used in Clause 12 ( Forwarding charges) is different from what is used in 9.2 : Clause 12 reads ” Where, as a result of the operation of a risk covered by this insurance, the insured transit is terminated at a port or place other than that to which the subject-matter insured is covered under this insurance, the Insurers will reimburse the Assured for any extra charges properly and reasonably incurred in unloading storing and forwarding the subject-matter insured to the destination to which it is insured.’ The reference here is to ‘operation of a risk’ covered under this insurance. Here the cargo is not at risk for the moment but only the voyage ahead cannot be pursued due to the war in and around the destination. So there is a frustration of the voyage leading to termination of the contract of carriage. Moreover forwarding charges under clause 12 are payable if the subject-matter is ‘forwarded to the destination to which it is insured’. The voyage to the destination, as stated earlier is not possible.

This leads us to the next question– Can the freight and other expenses for bringing the subject-matter insured back to India be claimed under Clause 16 ( Minimizing Losses -Duty of Assured)? The wording of Clause 16 is given below:

” It is the duty of the Assured and their employees and agents in respect of loss recoverable hereunder to take such measures as may be reasonable for the purpose of averting or minimizing such loss, and to ensure that all rights against carriers, bailees or other third parties are properly preserved and exercised and the Insurers will, in addition to any loss recoverable hereunder, reimburse the Assured for any charges properly and reasonably incurred in pursuance of these duties”.

Here again, there is no loss recoverable or no imminent danger to the subject-matter insured necessitating the assured to take steps towards averting/minimizing the loss. Frustration of the voyage ahead has led to the shipping companies terminating the contracts of carriage. The expense, to my mind cannot be recovered citing Clause 16. In short, there is no loss or damage to the subject-matter insured but only a frustration of the voyage. In fact the Institute War clauses ( Cargo) – CL 385-1/1/09 too carry identical clauses viz. 5.3 and 11 but there is no reference to Forwarding charges. Interestingly, there is a specific exclusion 3.7 which reads – ‘ any claim based upon loss of or frustration of the voyage or adventure’.