War & SRCC risks under Marine cargo policies – Notice of Cancellation

I am neither a crystal-ball gazer, nor did I have any internal information. . It was sheer coincidence.

My post War risk premium on cargo – a case for an increase? was published on 26th June & on 10th July, GIC re issued Notice of cancellation of war & SRCC risks on all marine cargo policies where they were participating. The seven days notice as required by the Institute War Cancellation clause (CL 271) would expire at 00.00 hours IST  and the cancellation would become effective 00.01 hours IST on 17th July 2019. The Notice also specifies how the coverage under Institute War clauses Cargo-2009 & Institute Strikes clauses Cargo – 2009 can be restored.

This Notice of cancellation of War & SRCC cover will apply only in cases where the cargo involved is 1) Crude oil 2) Petroleum & petroleum products 3) LNG 4) LPG 5) Chemicals 6) Fertilisers. The conditions laid down for restoration of War & SRCC covers are as under:

• Transits from, to, through or within the Persian or Arabian Gulf and adjacent waters including the Gulf of Oman west of longitude 58 degrees East will be considered as High Risk Areas and additional premium for each shipment will be advised from time to time.
• As of now, the rate proposed for covering War & SRCC risks for cargo on vessels transiting/operating in the High Risk Area will be 0.15% Net. 
• This rate will apply on the value of the shipment for War & SRCC covers only. Base marine cargo premium will be separate.
• Advance intimation of all such shipments are to be made by the assureds to their insurers.
• Change in premium rates or change in interests applicable will be with a 48 hours notice.

The implied meaning is that even in cases of transits involving the earlier stated group of cargo, if the transit is not from, to, through or within the High-Risk Area, restoration of War & SRCC cover is automatic at no extra cost. Clarification is expected that even in respect of the cargo stated, this Notice of Cancellation as of today would apply only for movements in bulk and NOT packed cargo.

Having not seen any claims under the Institute War clauses (Cargo)-2009 or even 1982, guess it is time to go through this clause, as also the Institute Strikes clauses Cargo-2009 & the Sanction Limitation & Exclusion clause. I feel there are more questions than answers.

The Institute War clauses (Cargo)-2009 provides cover for loss or damage to the subject-matter insured caused by war, war-like perils or any hostile act BY or AGAINST a belligerent power. This would mean that, in a war/war-like situation if the cargo is accidentally lost/damaged because of an action by own/supportive forces against a belligerent power, the same would be payable. It will not be limited to loss/damage caused by the belligerent power alone. Capture, seizure, arrest, restraint by a belligerent power is also covered under this clause. Should a mere capture,seizure, etc. result in a claim or there have to be proven loss or damage? 1.2 of the Institute War clauses (Cargo) speaks about ‘consequences thereof’. 

This is where the problem starts. If the loss or damage consequent upon a seizure, arrest or detention by a belligerent power, has to be ascertained and assessed, pray how do we do it? Problem becomes compounded if the belligerent power is under strict sanctions by the UN, USA or the EU. Any thoughts? Again, if the belligerent power in a war-like situation arrests or seizes a vessel with cargo and on the lines of pirates, demands a ransom, will/can the vessel owners declare General Average for the ransom or other monetary demand by whatever name called? It may be noted that the Institute War Clauses ( Cargo) covers General Average, but in a situation of the nature cited, can the policy respond? Especially if the belligerent power is hit by the Sanction Limitation and Exclusion clause. Another scenario which can develop post a seizure/arrest is that in a bid to prevent the vessel and cargo falling into wrong hands or be misused, the supportive forces destroy the entire vessel with the cargo in a raid.  Will this deliberate destruction be covered by the Institute War clauses ( Cargo)? A distant parallel can be drawn to the Deliberate Damage (Pollution Hazard) clause which was introduced to cover the bombing of a vessel with cargo by the Government authorities (following a loss payable under the policy) to avoid the eventuality of large-scale pollution. Before introduction of this clause, in a situation of this nature, the cargo claim was denied to the assured.

Another interesting aspect to be noted here is that the Notice of Cancellation is not only in respect of the Institute War clauses ( Cargo) but also the Institute Strikes clauses (Cargo). Since Terrorism is covered under the Institute Strikes clauses ( Cargo), possibly it was felt that, even if a full-fledged war or war-like situation does not develop, there could be acts of terrorism, which also need to be removed from the scope of cover in the current situation. This presents a different set of problems because the Duration clause under the Institute War clause( Cargo) & Institute Strikes clauses( Cargo) are markedly different. If for instance, a chemical in bulk meant for export to a High-Risk Area port is being pumped into the vessel in an Indian port & the exporter decides not to pay the additional premium for war risk cover. He gets eliminated from the Institute Strikes clause (Cargo) cover too, which may not have a bearing of the threat in the High-Risk Area. Suppose during loading, there is a terrorist strike leading to an explosion and loss of cargo, no cover is available, despite the fact that the incident occurred in a non High-Risk Area. Can there be a solution?

While we hope and pray that peace reigns not only in the High-Risk Area of today but the world over, in the event of a war/war-like situation, it is not only the cargo in bulk but the huge volumes of containerized cargo which will also be exposed. Looking to the geographical area, as of now, it would appear that crude oil, petroleum & petroleum products would be the high-risk cargo.