Where was the cargo?

This happened more than 20 years ago but remains fresh in memory because of the absurdity of the case and the lessons it taught me.

One afternoon, the Risk Manager of one our largest clients across lines of business called my boss on the phone. My boss immediately switched on the speaker so that we could jointly address the client’s requirement. The Risk Manager had one urgent requirement — they were moving a used crane valued at INR 15 million,(a huge sum insured at that time) on a barge from a port on the western coast of India to one on the eastern coast. We caught on to the key words, ” used crane”, ” coastal movement” and ” barge” and then our underwriting instincts took over. We quizzed the Risk Manager on whether the barge was self-propelled or whether it would be towed and the basis of arriving at the value of INR 15 million for the used crane. The reply was that the value represented the replacement value of a new crane and that it was a dumb barge which would be towed by a tug. Next, we called for the towage plan which the Risk Manager agreed to send no sooner he had the approved copy in hand. He requested that we convey our rates and terms over phone as the movement was scheduled for the following morning. We agreed to call back in 15 minutes and sure enough, we did,after internal discussions and conveyed the insuring terms and rate of around 0.20%. It was also agreed that we would fax the formal quote in a while. ( no e-mails at that time). The rate and terms were accepted by the client and he authorised us to debit the premium from the cash deposit account they maintained with us. This was done, the risk assumed, Held-covered letter issued and the policy too was issued in a couple of days. Once done, we forgot all about this risk and moved on to other activities.

A week later, we received a fax message from the client informing us that due to rough weather near the southern coast of Sri Lanka(even though technically a coastal movement between the western & eastern coasts of India, it involved going round Sri lanka as the Palk Strait was not suited for the voyage), the tow was broken and the barge with the crane was adrift in the ocean. We immediately contacted our controlling office for appointment of a salvor from Singapore. Even as were engaged in this, came a phone call from the client that the barge with the crane had sunk and that this could be treated as their Total Loss claim intimation. The realisation now sunk in on us that we were facing an INR 15 million claim. It was back to the controlling office under whose advice we appointed a senior loss assessor for investigation and assessment.

The loss assessor swung into action and sought a list of documents from the insured and also made inquiries with the Customs at the starting port and the DG Shipping. Soon afterwards, he submitted a preliminary report indicating that the claim may not be admissible. A month or so later, he submitted his final report along with documentary evidence to substantiate that the claim was not payable. Now, do not jump to conclusions that it was a fabricated claim. No, the towage plan was duly approved by the authorities and it was indeed an accident which caused the sinking. No doubt on that. Then where was the problem? There was no cargo which was covered under our marine cargo policy. What about the crane which sank, one might ask. Yes, it was very much there on the barge but there was no cargo. Confusing?

The crane was always mounted on the barge for very many years, i.e. it was a crane-mounted barge. Investigations made by the loss assessor brought out the fact that the client had approached another insurer for a Hull & Machinery cover for this not-often used crane-mounted barge. The insurer had quoted a rate of 1.5%. This was found too high and since time was short, the Risk Manager thought of passing off the crane as cargo including the value of the barge as a whole in the value of the crane. Possibly he felt that nothing untoward could happen on a single voyage, but then…….. Murphy’s Law came true.

We formally declined the claim citing that there was no Coastal Bill of Lading issued for the said crane indicating a contract of affreightment and that the policy was obtained wrongly citing a subject matter of hull machinery as cargo. Client’s argument was that whether as cargo or hull machinery, the crane would anyway be transported by fixing it on board the barge and hence there was no need for a Coastal Bill of Lading. Further they argued  how does the risk profile for the insurer change whether the crane was a cargo or a hull machinery. The client exerted pressure from all sides and at different levels to see the claim through for years, but we stood our ground. The insured did not go in for a legal recourse knowing fully well that they did not have a case.

Sounds absurd? Except for my boss, who is no more, all other players in this drama are still active in insurance. Should any of them be reading this post, it will be a stroll down memory lane, a not very happy memory.

As for me, the important learning from this was that however big a client and however strong the relationship, one should never release terms collecting bits of information over the phone. The proposer should put forward the risk details and his requirements in writing. Under the Sale of Goods Act, the principle of caveat emptor or Let the Buyer beware applies. However in a contract of insurance, notwithstanding the basic principle of Utmost good faith,it should be Let the insurer beware.