06 Apr COVID-19 and it’s impact on your marine cover
There has been a flood of news articles, speculation and predictions around COVID-19 with the world going into lockdown and social distancing. Speculation about global depression and world trade slumps are rife but what is the immediate impact of the restrictions to the insured in a marine cargo policy.
We hope to explain a few key clauses which will become important over the coming weeks and months. These include:
- Physical loss of or damage to cargo
- Termination of Contract of Carriage
- Forwarding charges
- Accumulation clause
PHYSICAL LOSS OF OR DAMAGE TO CARGO
“This insurance covers all risks of loss of or damage to the subject-matter insured except…” – Institute Cargo Clauses (A), Witherbys, 2009
The above wording is the cornerstone of a marine insurance policy. The intention of Marine insurance is to indemnify for fortuities which have resulted in physical loss of or damage to the goods insured.
Several issues immediately arise:
- Are the goods physically damaged or are they physically lost? If the goods are sound, the answer is “No”, and no claim is recoverable in terms of the policy.
- Other stipulations of the policy would need to be taken into account such as cause of loss, quantum of loss, etc.
There are several aspects in the above category and are broken up and explained below
Clause 8.1 of the Institute Cargo Clauses (A) reads as follows:
….this insurance attaches from the time the subject-matter insured is first mover in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or the conveyance for the commencement of the transit, continues during the ordinary course of transit and terminates either
8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the final warehouse or place or storage at the destination named in the contract of insurance
8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or any other warehouse or place of storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution, or
8.1.3 when the Assured or their employees elect to use any carrying vehicle or other conveyance or any container for storage other than in the ordinary course of transit or
8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter insured from the oversea vessel at the final port of discharge,
whichever shall first occur
Key to the above wording here is the phrase “whichever shall first occur”. Considering the numerous delays in and around ports worldwide and in South Africa, the clock starts ticking once that goods move over the ship’s rail. Even if the goods are not delivered to the final destination, should those 60 days expire, the goods will no longer be insured in terms of the policy.
Clause 8.3 of the Institute Cargo Clauses (A) reads as follows:
This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1 to 8.1.4 above and to the provisions of Clause 9 below*) during delay beyond the control of the Assured, any deviation, forced discharge, reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to carriers under the contract of carriage
This clause should give some relief to those who have their cargo redirected as a result of the lockdown. If Shipping lines redirect the insured’s cargo and it takes longer to get to the final destination, Clause 8.3 provides that cover in terms of the policy to remain in place.
TERMINATION OF CONTRACT OF CARRIAGE
Clause 9 of the Institute Cargo Clauses takes into account the possibility that the shipping lines may cease the contract of carriage at a destination other that the one agreed upon.
9. 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, either
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,
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.
It is critical that you keep in close contact with their clearing and forwarding agent and stay up to date regarding any situation which may arise. In such instances, Insurers will consider each issue on their individual merits. But you have to let your insurers know, if you don’t advise them then you could find your cover has expired.
Clause 12 stipulates where additional costs are insured
12 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.
This Clause 12, which does not apply to general average or salvage charges, shall be subject to the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from the fault negligence insolvency or financial default of the Assured or their employees.
The most important factor here is that, unless a loss is insured in terms of the applicable Institute Cargo Clause, forwarding charges are NOT recoverable in terms of the policy
Delay, and any resultant losses, are specifically excluded in terms of the Institute Cargo Clauses:
4.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
If the subject matter insured is perishable cargo, delay and the resultant damages are excluded unless they have been included by way of an extension.
The Institute Frozen Food Clauses (A) specifically excludes delay in clause 4.5. However, if the insured extended his cover to include the Frozen Food Extension Clause, Clause 4.5 has been amended as shown below and thus removes the delay exclusion:
4.5 claims arising from loss of market
The limit section of a marine insurance policy stipulates the maximum values insured any one vessel or conveyance. In import or export policy, that limit is augmented by a location extension. This allows for the likelihood of several consignments ending up at one location (such as Durban harbour) at the same time.
Under the Covid19 shutdown you need to be aware of multiple consignments accumulating in one location. Without prior notice Insurers are unable to extend this limit, so beware!
Whilst the above is by no means exhaustive, we hope it may clear up some of the concerns and queries. Each policy may have specific extensions or exclusions relating to the above topics and the policy must be interpreted as such. Please feel free to contact us should you have any comments or further queries.
Courtesy of Horizon Underwriting Managers