The recent Federal Court of Australia judgment in Swashplate Pty Ltd v Liberty Mutual Insurance Company  FCA 15 (16 January 2020) concerned the entitlement to indemnity for damage under a Cargo Insurance policy.
The case highlights the importance for underwriters, brokers and insureds to check commencement dates on insurance policies, ensuring that they take into account different dates and time zones between where the risk may be, if different to where the insurance is taken out. In this case, it was a cargo policy and the relevant risk was at the loading port in the US. The insurance was taken out in Australia.
The case also highlights the unique nature of marine insurance and the difficulty of determining what are the relevant terms of the contract of marine insurance (as maritime lawyers call it), as distinct from the policy.
Swashplate Pty Ltd (Swashplate) acquired in the United States of America and imported into Australia two Bell 427 helicopters. Liberty Mutual Insurance Company (the Insurer) issued two Aviation Helicopter Single Transit Policies of Insurance in respect of both helicopters.
The loading of the two helicopters occurred on 18 and 19 May 2018 in Picayune, Mississippi, USA. The container used for the first helicopter arrived on 18 May at 3:00pm, Picayune time, with the 15 hour time difference, in Australia this occurred at 6am, 19 May. During the process of loading the helicopter the loaders did not apply chocks to secure the wheels. The loading of the first helicopter was completed by 5pm on 18 May 2018, Picayune time, and departed for the Port of New Orleans. At 8am on 19 May, Picayune time, the same process took place in relation to the second helicopter. As with the first helicopter, chocking was not carried out. The container was loaded by about 10:00am and the truck departed shortly after.
Following correspondence between Swashplate's broker and the Insurer, on 22 May 2018 confirmation was received that cover was bound with effect from 19 May 2018 but it was not specifically stated whether this was by reference to Picayune time or AEST.
The failure to apply chocks caused both helicopters to be damaged during the voyage and a claim was made under both Policies. The Insurer granted indemnity in respect of the second helicopter but denied indemnity for the first helicopter. The Insurer denied coverage on the basis that the damage occurred on 18 May 2018 and therefore prior to the attachment of insurance on 19 May 2018, Picayune time.
Click here to view the timeline illustration of the Swashplate case.
The case turned on the issue of what was the correct inception date from which cover was bound. Although the placement slips noted the inception date as 19 May 2018, this date was not given in the context of mutually known circumstance as to the position of the helicopter. By 19 May 2018, the helicopter was already packed and stowed in a container and began its voyage by truck to the Port of New Orleans.
The Cargo Insurance Policy
The placement slips were submitted under an insurance facility negotiated between Austbrokers and Liberty in May 2017 and extended in May 2018. A Master Slip records this facility and the form that placement slips would take. The "class of insurance" described in the Master Slip was "Helicopter Cargo Insurance (single transit)" Thus, the Master Slip envisaged a specific single transit policy for each helicopter.
The Policy Wording incorporated the 2009 Institute Cargo Clauses (A). The "Period of Insurance" was described as:
Risks attaching during the period
From: 23 May 2017
To: 22 May 2018 both days inclusive LST
The operative placement slip covering the first helicopter described the "Period of Insurance" as:
From: 19 May 2018
To: Date of Arrival at Sunshine Coast Airport QLD
The Master Slip contained a "Static Cover extension" which states that, '[c]overage is extended to include Static Cover for up to 5 days prior to loading'. The Master Slip also contained three conditions, reflecting the Helicopter Single Transit Endorsement contained in the Respondent's policy wording:
1. Coverage includes loading and/or unloading but not the risk of disassembly / re-assembly / packing-unpacking of the units
2. Cargo professionally packed, stowed and carried AND/OR packing and stowage overseen by a qualified aviation engineer
3. Blades packed, stowed and carried in own box.
These conditions were also contained in the operative placement slip covering the first helicopter. Clause 1 of the 2009 Institute Cargo Clauses (A) provided for the risks covered which included all risks of loss of or damage to the subject-matter insured, except as excluded by Clauses 4, 5, 6 and 7. Of significance was Clause 4.3, which excluded:
Loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of the insurance…
Clause 8, the transit clause dealt with the attachment of the Policy and duration and relevantly provided:
… [t]his insurance attaches from the time the subject-matter insured is first moved 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 other conveyance for the commencement of transit, continue during the ordinary course of transit…
The Parties' Submissions
The Applicant's primary submission was that the Policy attached five days prior to 18 May 2018. This was because of the Static Cover extension provided for Static Cover 5 days prior to loading. Alternately they argued that the Policy should be understood as a voyage policy and not as a time policy and therefore the Policy covered the helicopter from when it was placed inside the container. The relevance of the date 19 May 2018 on the placement slip was only indicative of the expected start of the voyage. A further alternative argument was that 19 May 2018 was to be understood to be AEST and not Picayune time.
The Insurer submitted that Static Cover extension was qualified by the words "up to". Thus the five day period was not a mandatory, inflexible, retrospective declaration but a flexible period of up to five days from 19 May 2018, the date on the operative placement slip. The Insurer submitted that the Policy was a voyage policy and not a time policy as the words "immediately loading" narrowed the reach of clause 8 which made it much more likely that the Policy was a time policy. On the time zone issue, the Insurer submitted that assuming that the time to be AEST was contrary to significant legal authority and common sense, given the reference to 'LST' or Local Standard time in the Master Slip.
The Court held that the relevant contractual documents, namely, the operative placement slip, the Liberty International Underwriters policy wording, including the HST Endorsement, and the 2009 Institute Cargo Clauses (A), must be read together. Although the Master Slip was not a contractual document, his Honour found that it was undoubtedly admissible to assist in the interpretation of the insurance contract.
Critical to the Court's determination was the time difference between Picayune, Mississippi where the helicopters were placed into their shipping containers, and Queensland, Australia where the contract of insurance was entered into.
The Court found that if the Period of Insurance in the operative placement slip was a reference to when Static Cover attaches, it makes it plain that the time and date used is, as expressly stated in the Master Slip, the local standard time or, in other words, Picayune, Mississippi time. Further, the liability under the Static Cover was by reference to an act done locally requiring a conclusion that it was local time and not AEST that was intended.
His Honour the Chief Justice held that making the attachment of cover 19 May 2018, Picayune time and not 13 May 2018, gave effect to the entire Policy (including Static Cover extension). In doing so, insurers and insureds had a certain time for when pre-loading risk attached. By making 19 May 2019 the date, it was clear for both parties when the Policy started and would not require a post-event calculation, potentially leading to further uncertainty. This construction also provided that all of the words in operative placement slip had work to do, rather than Swashplate's construction that meant that "19 May 2018" was indicative only. Allsop CJ confirmed that the reference to 19 May 2019 was a statement with contractual force as to when the insurance commenced.
By 19 May 2018, Picayune time, the loading of the first helicopter had finished, and the voyage had begun. As such, the exclusion in Clause 4.3 plainly applied as the insufficiency or unsuitability of packing or preparation was carried out on 18 May 2018, Picayune time and therefore prior to the attachment of insurance.
The finding on construction meant that the issue of whether the Policy was a voyage or time policy was unnecessary to be decided. However, Allsop CJ determined that the words of the Policy made clear that this was a mixed time/voyage policy: a time Policy for the Static Cover and after that a voyage policy.
Allsop CJ confirmed that the resolution of the issues of interpretation was not straightforward. The complexity arose as the terms of the Policy existing across multiple documents, with the added complication of the Master Slip providing further context to the contractual terms. It would seem issue in this case arose due to a failure by either Swashplate or their broker to realise that the date and time for attachment of the Policy should be assessed by reference to the local time and not AEST.
The resolution of the interpretation issue was in line with the orthodox approach to the interpreting insurance contracts and the continued emphasis placed by Australian courts on the importance of considering the policy as a whole and ensuring that each word used gave effect to the objective contractual purpose.
For underwriters and brokers, the case is a lesson in ensuring that policy terms are easily capable of being understood, reflect the intention of both parties and that each party understands what information is required to be provided when binding a risk without reference to multiple documents.
For insurance brokers, the case is also a timely reminder that they should always ensure that they obtain the complete facts from their clients and to access precisely from themselves when cover should commence. In this case, a simple one-digit change from 18 to 19 May would have seen the Insurer cover the claim.