Is failing to insure the cardinal sin of trading?

Mike Burns
25 February 2014

25 February 2014 | Mike Burns

Mike Burns, partner in the marine and transit team at Weightmans “If you think insurance is expensive, try having an accident”, or so the saying goes. For cargo traders in the logistics chain the potential value of a marine policy covering risks to goods in storage and carriage cannot be underestimated.

To assume that ship or haulier operators or their insurers will pick up the tab for loss claims might not be an unreasonable thought when cargo is lost or damaged due to an obvious lack of care in custody. Images of the stricken container ship, the burning warehouse and the dropped Steinway readily scream culpability. But as previous articles have discussed, such operators will inevitably rely on terms and conditions, or international conventions to limit liability to a fraction of the claim amount e.g. UKWA £100 per tonne, RHA £1,300 per tonne, and BIFA and Hague Visby about £2,000 per tonne. For high value but low weight consignments this can mean slim pickings for the trader; the law reports are strewn with failed attempts to “break” limitation.

To add insult to injury, the modest cheque will often only arrive after a legal battle with operator interests. 

Much easier then to be in a position to make a claim under the policy, receive full indemnity for the claim, and leave it to subrogated insurers to take up the liability/recovery battle with the operator.

Two words from the “marine legal curiosity shop” describe another good reason to have marine cargo insurance - general average. When goods are loaded on a vessel the carrier will issue a bill of lading or similar carriage contract. Its clauses will contain the concealed surprise that in the event of a ship casualty, any emergency expenditure incurred by the ship – repair costs, emergency towage and suchlike - have to be shared pro rata by all interests in the “maritime adventure”, as has been seen in the recent MOL COMFORT casualty. That means the cargo owner having to get out the chequebook to pay its share of expense, before having cargo released from the carrier’s lien, even if the cargo has been damaged. Similar principles apply in relation to obligations to pay a share of any salvage award where cargo and vessel have been saved from peril.

Much more preferable, therefore, to have cargo insurers on board to underwrite these additional risks, and to arrange the cumbersome process of providing guarantees and bonds to ship owner and salvor interests.

There should be no complacency, however, that insurers will automatically pay claims for loss and damage. Particularly with sizeable claims, marine insurers can be expected to carefully scrutinise whether there is any “get out”.  Typical lines of enquiry include whether all relevant terms have been met and the claim promptly notified, if policy exclusions might apply, if loss was inevitably due to inherent vice of product rather than accident, or whether any warranties have been breached or pre-contract obligations to disclose material facts. There is no substitute for checking the small print.  Nonetheless, the changing legal insurance landscape now tends to protect rather than prejudice the bona fide policy holder.

If the cardinal rule of commerce is to make sure you get paid, then a possible cardinal sin of trading may be failing to insure. 

☛ Mike Burns is a partner in the marine and transit team at law firm Weightmans.

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