ILA's Marine seminar on Insurance claims ( 03.12.2010 to 05.12.2010 ) : ARTICLE - 1, COVER DURING LOADING AND UNLOADING - MARINE TRANSIT CLAUSE.
P.L. SIVAKUMAR
COVER DURING LOADING AND UNLOADING - MARINE TRANSIT CLAUSE.
It is well known fact that the Marine Transit Insurance clauses are well-defined clauses internationally and are governing every aspect of marine transit risks. It is also said that every word incorporated in the clauses is relevant as far as the marine transit insurance terms and conditions are concerned. Almost all the relevant words in the clauses have been tested in various courts of law and other legal forums in various countries.
A recent interpretation of the Transit clause at various quarters has generated a very interesting situation. It is known to every one that this clause contains the provision for specific duration of the risk cover which says that the “ risk commences from the time goods leaves the warehouse…...” and “…… shall terminate inter-alia on delivery to the consignee or other final warehouse or place of storage at the destination named therein”. It has all along been understood that this transit clause means cover from warehouse to warehouse. The general impression of this warehouse to warehouse cover has been that this duration aspect takes into account the specific time of commencement of risk, which according to the simple meaning has been from the time as soon as the ‘goods’ leave the floor of warehouse or place of storage. In other words, risk is operative during the process of loading as also unloading.
The recent interpretation, however, is that the risk cover is not operative during the process of loading and unloading. If it is intended to be covered under the policy, it must be specifically mentioned in the schedule of the policy and an appropriate premium should be charged for the same. This new interpretation has raised many pertinent questions relating to this aspect of the duration clause.
First and foremost, if the cover is not operative during loading and unloading then the question arises when actually cover commences and at what time the cover ceases? The loading and unloading operations are integral part of process of transportation of goods. If cover is not operative during this period then at what point of time the cover commences as also ceases? According to the new interpretation, it is said that the cover commences when the carrying vehicle actually leaves the warehouse. It has been seen that, at many a times when truck is loaded at warehouse even after completion of loading, the truck has to remain near the warehouse for quite a considerable period of time for various reasons like completion of documentation, formalities or to wait for traffic regulation applicable to movement of heavy vehicles etc. Imagine what will be the position if loss occurs in between the period from completion of loading and the commencement of actual transit by the carrying vehicle, say by fire, particularly, when the consignment note has been issued as soon as the goods are loaded on the truck? According to the new interpretation, no liability for such loss, will be there under the policy since actual transit has not commenced, although contract of affreightment has come into force. One wonders whether this is the intention of cover granted under the transit clause? Further what will be the position when small quantity of consignment which are sent to the warehouse of transporter? Such consignments are loaded on local conveyance and carried to transporter’s warehouse. On receipt of goods, the transporter issues Consignment note. The goods remain in the warehouse of the transporter for some time and then loaded on the carrying vehicle. After loading, the carrying vehicle may commence the actual journey immediately or may have to wait for some period. If underwriter has granted cover under ‘Inland transit (Rail or Road) -A’ what will be the position if loss occurs at any point of time before the actual transit commences? It may be noted that within this period itself, the loading and unloading takes place on more than one occasion. Does it mean that cover will remain operative during transit between the insured’s warehouse and the transporter’s warehouse and then temporarily become inoperative when unloading takes place? Similarly that cover will remain operative when goods are stored in the transporter’s warehouse then again become temporarily inoperative when loading of goods into the carrying vehicle will take place.
Such situations are also possible when goods are sent by rail or by shipping vessels. In one of the marine claim survey reports, it has been observed that the surveyor has attributed the probable cause of loss for a damaged consignment by stating that “the loss may have occurred due to jerk and jolts during transit or during loading and unloading operations”. In such a situation the claim-settling officer will naturally face the dilemma.
There can be innumerable situations where this new interpretation will create problems for both the insured and the insurer. Interestingly in this regard, no clear guidelines or circulars are seen in any of the offices. However, at the same time in many of the operating offices treatment of cover during loading and unloading for underwriting purpose as also during settlement of claims is being taken into account according to the new interpretation. The moot point is whether it is appropriate to accept this new interpretation in the practice of marine underwriting?
This new interpretation must be examined from the point of view what was the intention when the transit clause was originally drafted and introduced? Whether the uniform practice is being followed in the international market at present? As also what is the legal aspect of this new interpretation under the Marine Insurance Act and common law?
The ICC clauses as also the Inland transit clauses are in vogue for quite a long time. As such, the Transit clause is not a new clause. In the past, as also even today, the general practice followed by insurers and the marketing force is to negotiate any marine transit business by giving premium quotations for say ‘All Risks, S.R.C.C., W’house to W’house’. Insured is hardly advised about the implication of cover during loading and unloading. It is always understood that the warehouse to warehouse cover includes cover during loading and unloading operations.
The original intention of the Warehouse to Warehouse clause to include cover during loading and unloading is also clearly evident from the fact that the All Risk cover under Clause 'A' included “HOOK DAMAGE” loss to the consignment. Hook damage can occur during the operations of loading and unloading only. Over the years, number of claims have been settled for hook damage losses without questioning whether cover for loading and unloading has been taken by the insured or not.
The original intentions of the transit clause, when drafted and introduced, was no doubt to grant the cover during the period of loading and unloading also. Otherwise the wording of transit clause would not have been what it is today. If the original intention was to exclude cover during loading and unloading, the wording could simply have been made by stating that “ this insurance attaches from the time the carrying vehicle leaves the warehouse…….and terminates on arrival of the carrying vehicle at the destination named in the policy”. By using word as ‘goods’ instead of ‘carrying vehicle’ the intentions have been made very clear to include cover during loading and unloading also. If the intention was to exclude this cover, the same could have also been mentioned under various exclusions.
The transit clause is used been universally by the marine underwriters. One only wonders what practice with regard to cover during loading and unloading is followed in different places all over the world? In India, the position is not at all clear. Prior to detariffing w.e.f. 1. 4. 1994 the marine business was governed mostly by tariff but in the said tariff nowhere it was stated that transit clause excludes cover during loading and unloading, nor there was any provision for covering such risks on payment of additional premium. Even after detariffing, no clear guidelines or circulars appear to have been issued for operating offices. The general perception continues that the cover during loading and unloading is included under the prevailing transit clause.
From legal point of view, if one looks at this new interpretation, it appears to be not in consonance with the provisions of Marine Insurance Act- 1963. Section 3 of the said Act clearly states that A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that to say, losses incidental to marine adventure.” Surely the operation of loading and unloading is incidental to marine adventure. It is pertinent to note that there is a great difference between the “goods leaves the warehouse and the carrying vehicle leaves the warehouse.”
This aspect can also be examined from another angle that is to consider whether it is at all necessary to exclude cover during loading and unloading operations from the scope of transit clause? Since the loading and unloading operations are integral part of marine adventure, the scope of transit clause should continue to include cover during these operations also. The need to exclude this arises in a situation where statistically it is established that the proportions of losses during loading and unloading operations are substantially higher than losses arising from all other perils during marine adventure. In such a situation to keep the cover during loading and unloading operations out of the scope of transit clause and to have separate provision for covering this on payment of additional premium can be totally justified. This can be compared with the recent development with regard to TERRORISM cover which has now been made a separate cover under fire and engineering tariffs, based on the prevailing situations. One wonders whether in Marine Insurance, the situation with regard to the losses during loading and unloading has reached such an alarming proportions?
In any case, it is absolutely important to clear this ambiguity at the earliest in the interest of the industry. The best thing would be to continue the cover during loading and unloading within the scope of transit clause as it is and leave the matter for the judgement of respective underwriters on the basis of merit of each case. The underwriter can always use his discretion and either exclude or load the basic premium for a particular client in the event of adverse claims experience on account of loading and unloading operations.
However, if this new interpretation is to be accepted, it is important to deliberate this important issue at the highest level and issue necessary guidelines for underwriting with corresponding changes in the wording of the transit clauses. Adequate steps are also required to be taken to make the insuring public aware of this new situation. (Source : The journal )
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Dear Friend(s),
P.L.SIVAKUMAR
Council member / Seminar organiser
Institute of loss adjusters (Regn No. : 81/2001)
Mailing address: 18-Arthi Chambers, 189-Anna Salai, Chennai – 600006.
PH – 044 28527766, E mail: pandi...@gmail.com
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Rajeswar Rao Vijay Parsa
I wish success for the Seminar, I can not attend the same due to my preoccupation with Chnadi Homa that time.
I wish all success for the seminar.
This time I shall have to adopt any means so that my draft is not misplaced after consulting Mr. Pandiyan. During Windmill seminar my drfat got missed out. Better for you to give us your account number or we may have to give cheque which can be moitored by us. However it should be foolproof method.
With kind regards
P V RAJESWAR RAO
Date: Tue, 19 Oct 2010 11:55:55 +0530
From: plsiva...@yahoo.co.in
Subject: {Surveyors:6014} ILA's Marine seminar on Insurance claims ( 03.12.2010 to 05.12.2010 ) : ARTICLE - 1, COVER DURING LOADING AND UNLOADING - MARINE TRANSIT CLAUSE.
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