The recent Federal Court of Australia judgement in Swashplate Pty Ltd v Liberty Mutual Insurance Company  FCA 15 (16 January 2020) concerned the entitlement to indemnity for damage to a helicopter under a cargo policy with a ‘static cover’ extension.
The insured imported helicopters into Australia and had an annual facility with a marine insurer under a ‘master slip’ wording which provided “Helicopter Cargo Insurance (single transit)” cover for the insured’s helicopters during the insured period of insurance. The master slip incorporated the insurer’s policy wording, the Institute Cargo Clauses (A) 2009 [‘ICC(A)’] and a ‘static cover extension’. The insured, though it’s broker, would arrange an ‘operative placement slip’ for each helicopter to be insured for loss or damage during transit, creating a specific single transit policy for each helicopter imported.
In this case, the insured purchased two Bell 427 helicopters in Picayune, Mississippi, USA to be shipped to Australia. The insured, through its broker in Australia, arranged two aviation helicopter single transit policies in respect of both helicopters, with insurers agreeing for cover for both helicopters to be bound with effect from 19 May 2018. However, the operative placement slips did not say whether the commencement date referred to local time in Picayune where the helicopters were based, or Australian Eastern Standard Time (AEST) where the insurance was arranged.
The two helicopters were loaded into containers in Picayune on 18 and 19 May 2018 which was 15 hours behind Australia. In both cases, the wheels of the trolleys on which the helicopters were strapped were not chocked and properly secured for the intended transit. As at 19 May 2018 in Picayune, the first helicopter had already been packed in the container and was on its way to the port of New Orleans to be shipped to Australia.
Both helicopters suffered significant damage in transit as a result of insufficiency of packing. The insurer granted indemnity in respect of the second helicopter but denied indemnity for the first helicopter on the basis that the packing occurred on 18 May 2018, Picayune time, prior to attachment of the insurance on 19 May 2018.
The ICC(A) is the standard set of clauses for most cargo transit policies worldwide, covering insured cargos for all risks of loss or damage during the insured transit, subject to various exclusion clauses, including clause 4.3 which excludes loss or damage cause by insufficiency or unsuitability of packing or preparation of the insured goods “where such packing or preparation is carried out….prior to attachment of the insurance..” Clause 8 identifies the time when the insurance attaches, being “from the time that [the insured goods are] first moved in the warehouse or at the place of storage … for the purpose of immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit…” In this case, the facility’s cover for the loss or damage to the insured’s helicopters during transit was a standard transit insurance, except for the added ‘static cover extension’ endorsement to the master slip for a period of “up to 5 days prior to loading” which provided cover for damage to the helicopters, conditional on the cargo being professionally packed and/or packing overseen by a qualified aviation engineer.
The term “static” was not defined but the extension essentially covered the helicopters for loss or damage for ‘up to’ 5 days prior to the commencement of the insured transit, conditional upon the packing being at least supervised by a qualified aviation engineer. As it turned out, this static cover extension had the unintended consequence of moving back the attachment of the policy under clause 8 to a period up to 5 days prior to commencement of the insured transit, so that damage caused by insufficiency of packing that would otherwise have been excluded under clause 4.3 was now covered. Although this increased exposure under the policy was originally minimised by the condition requiring professional packing, the brokers negotiated an alternative condition during the previous renewal of the facility which allowed the packing to be overseen by a qualified aviation engineer. With the benefit of hindsight, this amendment potentially exposed the helicopters to additional risk of damage in transit, unless the ‘qualified aviation engineer’ appointed by the insured or the shipper was also experienced in preparing the helicopters for sea carriage i.e. packing and securing the helicopters to withstand the ordinary incidents of the insured transit.
The case turned upon the time difference between Picayune, Mississippi where the helicopters were placed into their shipping containers, and Australia where the contract of insurance was arranged. Allsop CJ found that the relevant policy attached at 12 am on 19 May 2018 Picayune time. Since the packing of the helicopter into the container occurred on 18 May 2018 in Picayune, prior to attachment of the policy, the damage caused by insufficiency of packing was excluded under clause 4.3 of ICC(A). The court primarily decided this case on contractual construction, finding that the various contractual documents, consisting of the operative placement slip and the policy wording, including the static cover extension and the 2009 ICC (A) must be read together, as a whole, giving effect where possible to all provisions in a harmonious construction reflective of business common sense. This is the usual approach to policy interpretation in Australia.
The judgement turned on what part the identified date “19 May 2018” placed adjacent to the phrase “Period of Insurance” in the operative placement slip played in the cover. Allsop CJ found that the purpose of placing the date adjacent to period of insurance on the operative placement identified the commencement or attachment of risk of the static cover and the insurer was on risk from that date. This approach gave effect to the whole policy, and provided certainty as to when the risk attached. Further, the terms of the master slip which specified “LST” (local standard time), and the fact that identification of a date to commence insurance was by reference to an act done locally (i.e. loading) meant that it was clearly local time (Picayune time), not AEST, that was intended as the time for commencement of the policy.
It is common for policies to consist of a combination of standard wordings which are modified through negotiation to address particular issues which will be favourable to either the insurer or the insured. Care should be taken by both insurers and insureds when modifying part of the policy to ensure that other parts of the policy are not also changed unintentionally by the amendments.
Further, insurance brokers should ensure that they are provided with full information when arranging cover to ensure that the policy is arranged before the risk commences.