In any case the rioters often cause substantial property damage and can easily completely disrupt modern logistics chains. How does cargo insurance in its various forms provide protection in these circumstances?
There was once a transport
Let us take as a basis for consideration the following fictitious example. A cargo container of components is on its way from Asia to Europe and is being warehoused in a harbour. A mob of about a thousand people demonstrate furiously against the ruling authorities near the harbour area and end up destroying all the goods in the harbour warehouses, and even the components, which are on their way to Europe are destroyed during the riot. As a consequence of the damage the production at the receiving end comes to a standstill because replacement customer and product related components are extremely difficult to obtain at such short notice.
Damage caused to the components
The International Institute Cargo Clauses (ICC-conditions) which are generally applied to cargo insurance would exclude the above-described type of damage so that even in the most comprehensive form of the conditions, i.e. ICC (A)-conditions there is no cover provided. Cargo insurance does not cover losses, damage or expenses, which are caused by employees who are on strike or lockout or by people who participate in labour disputes, riots or civil unrest. The insurance also does not cover damage, which is caused by terrorist(s) or by any person who acts for other political reasons.
The Institute Strikes Clauses (Cargo) is its own form of insurance cover, which in practice is always included in the cargo insurance solution. In spite of its name, the Institute Strikes Clauses (Cargo) provides cover for all of the above-mentioned incidents, which can cause damage: strikes, riots, civil unrest and also property damage, which is caused by terrorists or by another group the aim of which is to exert political influence. However, this is based on the assumption that the rioters or strikers have in fact damaged the property, which is being transported. If the goods remain in the harbour warehouse due to a strike and e.g. the foodstuff goes bad whilst in storage, then it is no longer a question of a damage, which will be indemnified by the Institute Strikes Clauses (Cargo).
In the example case mentioned above, the Institute Strikes Clauses (Cargo) that are included in the cargo insurance will indemnify the damage caused to the goods, which are being transported. However, the indirect costs such as delay costs, trans-shipment costs, loss of gross profits and any contractual penalties are excluded from the cover provided. These costs can sometimes increase to such an extent that they are even higher than the property loss itself.
Indirect losses caused by delay
The damaging of goods that are being transported can cause at the receiving end an interruption in production or a delay in a construction project. This in itself can cause extra expenses, a loss of gross profits, a decrease in market share and possible contractual penalties for the contracting party. Under similar circumstances, the transport equipment could suffer breakage or a breakdown as the result of the unrest or e.g. the closing of the harbour due to a riot–sometimes for a surprisingly long period of time.
As was mentioned above, the Institute Strikes Clauses do not provide cover for indirect expenses caused by the damage. However, the Marine Consequential Loss Insurance, MCL provides a solution to the problem.
The MCL-insurance is generally taken in addition to the normal cargo insurance when it is a question of a major project delivery in which the damaging or destroying of critical parts during a transport would result in a delay in the completion of the entire project and thereby also delay the commissioning of the entire production plant.
The pre-requisite for MCL-insurance is that the goods, which are damaged or totally destroyed during the transport, shall be indemnified under the cargo insurance. Therefore the mere interruption of a transport is not enough to trigger indemnification under the MCL-insurance. The actual physical damage to the goods is indemnified by the cargo insurance, but the extra expenses such as expediting costs and a loss of gross profits caused by the delay that resulted from the damage are indemnified under the MCL-insurance.
Don’t Worry
The damage to the transported goods caused by riots, strikes and even terrorism are nowadays almost always indemnifiable losses. This necessitates that there is strike insurance in force, which, it might be said, is nowadays a standard part of all cargo insurance. If the unrest “only” causes indirect expenses or losses due to delay, then a separate Marine Consequential Loss Insurance is a pre-requisite for indemnification to be paid.
Finally, a few additional words of caution about high-risk areas. In respect of transports that are carried out in areas that are classified as high risk, the strike insurance cover on its own is not enough. The cargo insurance must always be agreed beforehand with the insurance company. You will find further information about these areas at
www.if-insurance.com. Select Insurance Solutions and Marine Insurance. We also always send a notification by e-mail to our clients and to our partners, when there are any changes to the High Risks Areas-list.
Kari Koljonen
