The Institute Cargo Clauses - Literature review Example

INSTITUTE CARGO CLAUSES (A By Insert Presented to Location Due Introduction The Institute Cargo Clauses are terms specifying the type of cargo covered by insurance policies. They outline the items covered as well as the risks that these items are insured from. These clauses, developed by the International chamber of commerce, were first introduced in 1982. The most current version, which is a result of revisions intended to provide clarifications on rather ambiguous sections is the 2009 version (Carr, 2013). In particular, there are three clauses: (A), (B), and (C). Clause (A) provides the widest coverage; (B) is more restrictive while (C) is the most restrictive. In its definitive opening, Clause (A) asserts that it offers insurance to all risks of loss of or damage to the subject-matter insured except as excluded by the provisions of Clauses 4, 5, 6 and 7 (ICC, 2009; Soady, 2013). There has been controversy however, as to the validity of the claim by the Clause to offer insurance to all risks. This paper therefore discusses the Institute Cargo Clauses (A), and elucidates that contrary to its claim, this clause does not actually cover all risks. This objective will be achieved by critically discussing literature pertaining to the interpretation of the clause and complementing this with information from related cases. The phrase “all risks” has often been a contentious one, creating confusion as to whether particular losses not arising from the indicated exclusions were indeed covered under this policy. The Institute cargo clauses offer insurance to all risks subject to the outlined exclusions (Bundock, 2013; Bishop, 2009; Zhu, 2007). According to Merkin, & Hjalmarsson, despite being “all risk”, the policy requires a rigorous review of exclusions to determine the risks actually covered (2013). According to Lloyd’s Agency inevitable occurences, events almost certain to happen or those where the assured is within capacity of control are not indemnified under “all risks” (2011). Hodges (2012) argues that the term “all risk” does not refer to all eventualities and that for marine insurance, it only refers to marine perils. Hodges goes on to clarify that the underwriter is a mere insuror and not a guarantor. Thus, the insurance does not provide a guarantee of indemnity against any eventuality. On their part, Hudson, Madge, & Sturges elaborate that the term all risks should not be interpreted as widely as a policy that covers “all loss and damage whatsover “ (2013). In essence, the circumstances leading to the loss should not be inevitable. This is further corroborated by Merkin et al., who assert that the underwriters’ liabilities only extend to accidental happenings, excluding those which amount from expected risks (2014). Thus, where the risks occassioning the loss were expected, and could therefore have been avoided, then the underwriter ceases to become liable. The term “all risks” usually excludes losses arising from ordinary processes. This is illustrated by the Gaunt case, presided over by Lord Sumners. Sumners held that: There are, of course, limits to `all risks. They are risks and risks insured against. Accordingly the expression does not cover inherent vice or mere wear and tear or British capture. It covers a risk, not a certainty; it is something, which happens to the subject-matter from without, not the natural behavior of that subject-matter, being what it is, in the circumstances under which it is carried. (British & Foreign Marine Ins. Co. v. Gaunt, 1921). The extent of the cover arising from the use of the term “all risks” can also be understood by considering the Schloss Bros v Stevens. In this case, Walton J asserted that: All risks by land and water etc must be read literally as meaning all risks whatsoever. I think they were intended to cover all losses by any accidental cause of any kind occurring during the transit… there must be casualty (Rose, 2013). This further elaborates the requirement that the intervening factor be an abnormal circumstance. The term casualty as employed by Walton J. may refer to any event that is fortuitous, accidental, or any other circumstance that may otherwise be considered so. In dealing with the interpretation of the “all risks” clause, and its use as a justification for indemnification of assured parties covered under an “all risks” insurance policy, the Supreme Court of North Carolina set out four conditions to be met. The first of these is that the loss in consideration must be fortuitous, that is, that it arises purely out of accidental circumstances. Secondly, such loss or damage should not wholly arise from a defect or inherent quality in the subject matter. Thirdly, such loss or damage should not occur as a result of purposeful misconduct or fraud by the insured and that finally, that such risk must be lawful (Supreme Court of North Carolina., 1973). When either of these conditions is not met, then the risk in question is usually not considered to fall under the “all risks” category set out in the policy. It has been noted that the term “all risks” does not amount to a cover for losses where the circumstances were inevitable. Such inevitable circumstances include regular wear and tear, ordinary leakage and breakage as well as vices inherent in the nature of whatever is being insured (Hodges, 2013; Burnett & Bath, 2009; Wilson, 2010). According to Lord Birkenhead: “all risks cannot, of course, be held to cover all damage however caused, for such damages as is inevitable from ordinary tear and wear and inevitable depreciation is not within the policies.” ((Lord Birkinhead) in Hodges, 2013). This precisely illustrates the basis for as well as the inherent exclusion of inevitable circumstances from cover. Apart from inevitable circumstances, expected risks and risks resulting from the nature of the product do not result in the underwriter’s liability. This is for example where such a loss was bound to happen, where it arose from inherent vice of the product (Merkin, 2011; Murray and Holloway, 2012), where intervention achieved a certain standard of likelihood or where the loss arose naturally from human intervention (Bennett, 2007). In such circumstances, the loss of the product usually fails to meet the minimum requirement of fortuitousness. Fortuitousness is one of the most pertinent requirements that have to be fulfilled if the underwriter is to be held liable. According to Hudson, Madge, & Sturges, an assured is only required to show that the loss arose out of a casualty, and not out of a certainty (2013) or an inherent vice (Plough, Inc., Plaintiff-appellant, v. the Mason and Dixon Lines, Defendant-appellee, 1980). A claimant need only prove fortuitousness of the loss (Baatz, 2014; Andrewartha & Stone, 2005: Chuah, 2013).Rose corroborates these assertions and contends that where a loss is fortuitous, it is possible for an assured to recover albeit the loss is as a consequence of negligence (2013) (INTERN. MULTIFOODS CORP. v. Commercial Union Ins., 2002). In all circumstances, fortuitousness is a minimum condition for a loss to be recoverable (Scott v. Continental Ins. Co., 1996) (Andrewartha, 2010). This is illustrated by Hodges who cites the case of London and Provincial Leather Process Ltd v. Hudson, whose insurance terms caused it to acquire a description as the ‘widest possible policy’ (2013). Nonetheless, the presiding judge, Lord Justice Goddarn held that “there must be in some form or another, a casualty” (Quoted in (Hodges, 2013)). Other such instances include F W Berk & Co v. Style, where a restrictive interpretation was applied to a clause that outlined that the policy insured against all risks of loss and/or damage from whatsoever cause arising. In the interpretation of the term, it was held that the same was not wide enough to cover losses or damages brought about by inherent vices since the same could by no means be described as accidental or fortuitous. Clearly, though the Institute Cargo Clauses employs the use of the term “all risks”, it does not actually provide indemnification against all losses. When it comes to paper losses, the Institute Cargo Clauses provides no indemnification at all. These are losses that occur on paper, but are not actually physically occasioned to the goods assured. According to Merkin in many insurance policies, there must be actual physical damage, seizure or annihilation of a something(2014). In the case of the Institute Cargo Clauses (A), only physical losses and damages are covered, with financial and consequential losses being excluded (ICC, 2009). Lord Atkin asserts that underwriters do not insure arithmetic, they insure casualties (quoted in Dunt, 2013b). This is captured In Coven SpA v. Hong Kong Chinese insurance Co, where Justice Clarke L.J avered that while the marine cargo policy in force insured physical loss, but not mesurement errors. This is captured in the case of George Kallis (Manufacturers) Ltd v. Success Insurance Ltd (Dunt, 2013a). The cargo was scheduled to be shipped aboard a vessel named Ta Shung but was actually shipped aboard another vessel named Ta Hung. Moreover, the same cargo was transshipped aboard another vessel and the cargo consequently destroyed by water used to quench a fire aboard this vessel. Although initially prevailing, the final decision at the highest level of appeal was that the risk never attached meaning that the goods were not actually on risk when they were lost. Conclusion The Institute Cargo Clauses provide insurance cover against “all risks”. However, an in-depth analysis of the “all risks” guarantee reveals that the policies do not actually indemnify the assured against all risks. First and foremost, the term “all risks” only applies to those losses not excluded under the exclusion clauses 4-7. Moreover, the term only applies to those risks that result from inevitable, unexpected and unpredictable circumstances. In order for an instance of loss to prevail under the all risks consideration, it must be fortuitous. The claimant is only required to prove fortuity of the loss. This is the minimum condition for any recovery is to proceed. Clearly then, the Institute Cargo Clauses (A) do not provide indemnity for all risks. More so, the clauses do not provide any indemnity whatsoever for paper losses. List of References Andrewartha, J. (2010). English maritime law update: 2009. Journal of Maritime Law and Commerce, 41(3), 345-367 Andrewartha, J., & Stone, Z. (2005). English maritime law update: 2004. Journal of Maritime Law and Commerce, 36(3), 307-342. Avis v. Hartford Fire Insurance Company, 27 (Supreme Court of North Carolina. April 11, 1973). Baatz, Y. (2014). Maritime Law (3rd ed.). Hoboken: Taylor and Francis. Bennett, H. (2007). Fortuity in the Law of Marine Insurance. Lloyds Maritime and Commercial Law Quarterly , 315. Bishop, B. (2009). European Union law for international business: an introduction. Cambridge: Cambridge University Press. British & Foreign Marine Ins. Co. v. Gaunt, 2 AC 41 (1921). Bundock, M. (2013). Shipping Law Handbook. 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