Packing of goods - not just pretty wrapping
If News 3/2015 Marine. It sounds simple enough: goods are to be packed so that they withstand the ordinary incidents of the insured transit. Yet cargo underwriters frequently encounter questions regarding the sufficiency of packing, e.g. who is liable for packing, does the packing have an impact on the coverage and to what extent.
Let us try to shed some light on these questions. But please, do not expect any universal and detailed instructions on packing of goods, but what is cargo insurance´s take on this question.
Packing – definition, purpose and responsible parties
Shippers of goods have the noble aim of getting the goods safely and intact to their final destination. Packing serves the purpose of safeguarding the goods in the course of transit. One needs to separate two different kinds of packing: the sales packages of goods and the outer packaging for safeguarding the goods. Cargo insurance does cover the contents of the outer package, but not the package material unless the latter has been included into the cover.
Unless otherwise specifically agreed between the shipper and the carrier, it is always the responsibility of the shipper to pack the goods in such a manner that the packing withstands the ordinary incidents of the transit – hence it is suitable for the mode of transportation, length of the transport, the anticipated weather conditions and so on.
Even if goods are sold Ex Works Incoterms ®2010 it is on the seller’s responsibility to pack the goods and bear the costs for packing. And similarly the responsibility regarding packing lay on the shipper and not on the carrier unless these parties have expressly agreed otherwise.
Institute Cargo Clauses (A), (B) and (C) 01/01/09
All above mentioned Institute Cargo Clauses have the same clause 4.3 regarding packing:
“4 In no case shall this insurance cover…
…4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors)”.
The relatively new Institute Cargo Clauses 01/01/09 do not cover poor packing and preparation if the packing and preparation have taken place prior the attachment of the insurance. If the insufficient packing or preparation takes place prior to the attachment of the insurance there is no insurance cover irrespective of the fact who carried out the duties; assured or third parties. Institute Cargo Clauses attach when the goods are first moved “for the purpose of immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit”.
What this means is that if the goods are first moved within mill /logistics department of a facility for packing or preparation done by a third party packing “consultant” and the packing and preparation was not up to requirements, this would still be excluded as the goods were moved for packing and preparation – not for immediate loading.
If the poor packing and preparation has been done by the Assured or their employees there is no cover for loss, damage or expense caused by poor packing or preparation. What does the “carried out by the Assured or their employees” mean? Packing done by the Assured or their employees is rather clear. In a majority of cases the packing of the goods is done by the shipper – thus the Assured – himself.
But what if the Assured uses third party packing expertise? Should the Assured give detailed instructions regarding the packing and/or supervise the packaging of the goods, then the situation should be similar to the Assured taking care of the packing by himself. If it does not fulfil the concept of packing, it should however fall under the concept of “preparation”.
Packing, preparation and the ordinary incidents of the insured transit
Each type of goods and each case must be weighted on its own merits and facts. There must be a balance between the required packing done by the shipper and the required degree of care required from the carrier. The mere fact that goods are of difficult size or shape does not constitute insufficient packing, it is only something the carrier must take into account when stowing the goods.
Packing and preparation – when does it take place and is there any difference? In addition to the attachment of insurance there is one other chronological hurdle. In the court case Helicopter Resources Pty Ltd. versus Sun Alliance Australia Ltd. the meaning of packing and preparation was analysed in great detail. This was about four helicopters being transported on board the vessel Icebird from Hobart Australia to Antarctic base at Casey. All helicopters were damaged in rough sea conditions and the insurer was of the opinion that this was due to insufficient packing and preparation by the assured’s employees.
If I may jump to the conclusions on this case; according to the court ruling both preparation and packing usually take place prior loading. The case also highlighted the fact that preparation could mean numerous different things depending on the goods in question: for example removal, adjustment or securing some mechanical part of the piece of goods.
The concept of packaging is wide
This makes the concept of packing and preparation much wider than “just” placing some kind of outer covering on the goods. Preparation could also be rust proofing or proper and tight covering of the items that are to be transported on deck or on an open trailer.
Packing and preparation are to be done in such a manner that it withstands the ordinary incidents of the insured transit. This was actually added to the Institute Cargo Clauses during their latest revision in 2009. This phrase originates from the cases regarding inherent vice in which it is often stated that a loss is caused by “the natural behaviour of the subject-matter insured, being what it is in the circumstances in which it is expected to be carried”.
This principle was applied in Mayban General Insurance BHD versus Alstom Power Plants Ltd. It was stated in this case that a large transformer carried on deck was unable to withstand the ordinary incidents of the carriage due to the failure to protect it by sufficient packing (Dunt 2009, p.151).
Something to keep in mind
As a shipper a good rule of thumb is that you are liable for the sufficient packing and preparation of the goods. When judging the required level of packing and preparation common sense carries a long way. But keep in mind that insufficient packaging and preparation not only can lead to a denied cargo claim but can also release the carrier from liability as well as lead to shipper’s liability for damage to other cargo because of the poor packaging of one’s own goods.
Kari Koljonen Head of Marine Underwriting Finland, LL.M.