Hanjin Shipping's financial collapse has been well publicised. As a consequence of its collapse one can anticipate that there will be displaced containers worldwide with Hanjin vessels being arrested short of or at destination, being moored up or remaining outside port limits to avoid arrest or being stuck at a port short of destination with the port authority unwilling to provide port services absent payment in advance. One press report we have seen suggests that in excess of 500,000 TEUs already loaded on Hanjin vessels may be subject to delay.
To name but a few consequences - there may be a greater theft and port accumulation risk if cargo has to be offloaded and stored. Temperature sensitive cargoes e.g. pharmaceuticals and/or cargoes with a short shelf life e.g. livestock or agriproducts may similarly be at greater risk. For non-perishable cargoes extra cost may have to be incurred to get the cargo to destination.
The purpose of this note is to provide a high level overview of key potential cargo insurance issues, which may arise.
Analysis – the insolvency exclusion
The Institute Cargo Clauses (A) 1/1/82, at Clause 4.6, provide that:
4. In no case shall this insurance cover:
4.6 Loss damage or expense arising from insolvency or financial default of the owners, managers, charterers or operators of the vessel…".
Over course of time a more restricted exclusion wording, came to be used in the London market, notably in the Institute Commodity Trades Clauses of 1983). This was adopted as Clause 4.6 of the Institute Cargo Clauses (A) 01/01/2009 as follows:
4. In no case shall this insurance cover:
4.6. Loss damage or expense caused by insolvency or financial default of the owners managers charterers or operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel, the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or financial default could prevent the normal prosecution of the voyage.
This exclusion shall not apply where the contract of insurance has been assigned to the party claiming hereunder who has bought or agreed to buy the subject-matter insured in good faith under a binding contract".
The exclusion will therefore not apply if the policy has been assigned toa buyer in good faith under a binding contract.
Also, and more importantly, the exclusion does not apply in any event unless the Assured were "aware or in the ordinary course of business should be aware" that the owners' insolvency or financial default could prevent the normal prosecution of the voyage. Underwriters would have the burden of proving in any given case that at the relevant time the insured was aware or in the ordinary course of business should have been aware that the insolvency or financial default which has proximately caused the loss could have prevented the normal prosecution of the voyaget.
Different considerations may apply to insurers who have written business on the 1982 Institute Cargo Clauses, as the insolvency exclusion in the 1982 Clauses is of much wider potential application.
Analysis – continuation of cover
If cargo is delayed, it may no longer be in the ordinary course of transit within the meaning of the Transit Clause 8 of ICC (A) 01/01/2009. However, by Clause 8.3:
"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…".
Termination of Contract of Carriage Clause 9 applies where, "owing to circumstances beyond the Assured's control", the contract of carriage terminates short of destination or the insured transit otherwise terminates before unloading of the goods as provided for in Clause 8.1. Clause 9 provides that the insurance will also terminate unless prompt notice is given to insurers and a continuation of cover is requested, for which an additional premium is payable if requested, in which case the cover will continue in force until terminated as provided for in Clause 9.
Special policy terms may vary or replace the Duration of Transit provisions of the ICC.
Analysis – the recoverability of forwarding charges etc.
The insured may have to incur additional expense in order to get the cargo to destination. Are such expenses recoverable from Underwriters?
By Clause 12 of the 2009 Clauses, where a covered peril has operated, insurers are to 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". Clause 12 "shall not include charges arising from the fault negligence insolvency or financial default of the Assured or their employees". That refers to the Assured's insolvency, not that of a third party carrier, and so this caveat is irrelevant.
The Duty of Assured Clause 16.1 of ICC (A), providing for the recovery of sue and labour expenses, is similarly contingent on there being "loss recoverable hereunder" and obliges the insured "to take such measures as may be reasonable for the purpose of averting or minimising such loss".
There is potentially some overlap between Clauses 12 and 16. Clause 12 is more specific as to what expenses are recoverable than Clause 16 so in principle expenses which do not fall within Clause 12 may still fall within Clause 16, possibly including measures taken to recover and preserve cargo under threat from creditors of Hanjin and/or abandoned cargo at risk of loss or damage. Both Clauses require that expenses be properly and reasonably incurred.
Aside from the Insolvency exclusion, Clause 4.5 of the ICC (A) Clauses, the delay exclusion, may be relevant and provides:
4. In no case shall this insurance cover
4.5. Loss damage or expense caused by delay even though the delay be caused by a risk insured against (except expenses payable under Clause 2 above)".
Clause 2 refers to GA and salvage expenses and is irrelevant. Expenses incurred by an insured to get the cargo to destination may be incurred merely to avoid delay. If so, Clause 12 and Clause 16 of the (A) Clauses are unlikely to assist an insured since both clauses require a covered peril to operate for expense to be recoverable.
The ICC (A) Clauses may be supplemented or varied by Policy wordings providing extra expense or expedited expense cover. How any such cover would operate in light of the various ICC(A) exclusions would depend on the wording used – and our experience is that wordings vary widely. Absent such cover or other relevant Policy language to assist the insured, the recoverability of forwarding charges may be open to question.