Marine Cargo Insurance




The need for special clauses

9.1 The Institute Cargo Clauses (A) provide a convenient standard form of core contract but insurance cover in most cases should be tailored to the needs of the assured by the judicious use of special clauses, whether because of the assured’s trade, the nature of the commodities carried, or the special needs of the cargo, for example, a propensity to suffer from inherent vice or difficulties with packing. Indeed the key to an appropriate cover may be said to lie in the use of such clauses.1 9.2 The first half of this chapter considers the standard named perils clauses, the Institute Cargo Clauses (B) and (C) which are used for certain vulnerable cargoes and in cargo reinsurance. The chapter then examines the trade and commodity clauses. After noting the position with regard to the Institute Commodity Trades Clauses and the Institute FOSFA Trade Clauses, five clauses designed for specific commodities, bulk oil, coal, jute, timber and rubber are then examined. All of these Clauses have been updated to reflect the amendments to the Institute Cargo Clauses (A), (B) and (C) in 2009. The Institute Clauses for frozen foods are then briefly considered. The chapter concludes with an analysis of the Institute Clauses for postal sendings and carriage by air. Other special clauses are analysed during the course of this book in the context of the particular issue or problem they address. For example, Sellers Interest Clauses are examined in 2 (Insurable Interest and the Indemnity Principle); clauses extending cover or limiting exclusions (e.g., the packing exclusion) are considered in 3 (All risks and Exclusions); and clauses varying the insured transit to extend to storage (e.g., stock throughput cover) are considered in 4 (Duration of the Insurance). Finally, additional expenses clauses are considered in relation to sue and labour in .5 There is a separate Table of Institute and Other Clauses at the beginning of the book as a guide to where other special clauses are considered in the text.

Named perils under the Institute Cargo Clauses (B) and (C)

The use and origin of the (B) and (C) Clauses

9.3 The Institute Cargo Clauses (B) and (C)6 provide cover against named perils, rather than against all risks.7 Although an insurance on the Institute Cargo Clauses (C), which provide the narrower form of cover, complies with the seller’s obligations under a c.i.f. contract incorporating Incoterms,8 insurance against named perils is less commonly encountered in practice today as cargo policies are generally written on all risks terms. The named perils cover is, however, used occasionally for especially vulnerable cargoes.9 It is also the practice for cargo insurers to reinsure themselves against larger losses caused by major casualties by reinsuring on the terms of the Institute Cargo Clauses (B) or (C). 9.4 There are a number of provisions in the Institute Cargo Clauses (B) and (C) which continue to reflect the terms of the With Average (WA) and Free of Particular Average (FPA) Clauses and the SG Form of Policy which was used in conjunction with these Clauses. That said, the intention of the draftsman was clearly to leave behind, so far as possible, the wording which had been so much criticised by the courts and by UNCTAD.10 Moreover, the two tiers of cover now provided in the (B) and (C) Clauses do not equate to the variations in cover between the FPA and WA Clauses. The (B) and (C) Clauses are distinguished by a more generous provision of perils under the (B) Clauses for which, no doubt, a higher premium is payable. The WA and FPA Clauses were distinguished on a different basis. The WA Clauses provided cover for losses, whether total or partial, subject to claims reaching a certain size by percentage under the Memorandum in the SG Form so, for example, sugar tobacco and hemp were not covered unless the loss exceeded 5% and other goods were not covered unless the loss exceeded 3%. This limitation was known as a franchise and when the franchise percentage was reached the claim was payable in full. The FPA Clauses provided cover that was limited initially to cases of total loss. These limitations on cover were lifted under both sets of Clauses where the vessel was “stranded, sunk, or burnt” and both paid the value of any packages “totally lost in loading, transhipment or discharge”. There was also full cover for loss or damage “reasonably attributable to” fire, explosion and collision.11 The limitations on cover were achieved in time-honoured language, by “warranting” the insurance “free from average under the percentage specified” (WA) and “warranting” the insurance “free from Particular Average” (FPA) and then lifting these restrictions by the proviso “unless the vessel be stranded, sunk or burnt” or there was total loss of packages, fire or collision etc., as just described. These older forms of cover occasionally have relevance to the current Clauses in relation to particular issues where they will be referred to from time to time.12

General structure of the (B) and (C) Clauses

9.5 The risks covered under the (B) Clauses are broken down into two groups and a different causative formula is used for each of those groups. The first group of risks is as follows:
  • “1.1.1 fire or explosion
  • 1.1.2 vessel or craft being stranded grounded sunk or capsized
  • 1.1.3 overturning or derailment of land conveyance
  • 1.1.4 collision or contact of vessel craft or conveyance with any external object other than water
  • 1.1.5 discharge of cargo at a port of distress
  • 1.1.6 earthquake volcanic eruption or lightning,”

The words “reasonably attributable to”, which introduce these risks, widen the proximate cause rule and cover the case where the risk is only one of the effective causes or factors contributing to the loss.13

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