Acts of War and Cargo Insurances

If News 3/2014 Marine. Every now and then cargo owners and insurers are face to face with the question what war perils are covered and can be covered with cargo insurance. For obvious and very unfortunate reasons these questions are at the moment raised and hence it is worthwhile to have a little recap on this topic.

​The term “war” became part of the Cargo Insurance wordings and vocabulary only in 1982. Despite the ever ongoing conflicts here and there, there is actually no definite and exhaustive one size fits all definition of war. As John Dunt puts it (Dunt, 2009 London): ”The word is to be given its ordinary and popular meaning as a commercial man would use it. The court is searching for the meaning intended by the parties and not a technical legal meaning derived from the niceties of international law.”

War – is there an exhaustive definition?

As said, a formal declaration of war is not a threshold question when deciding whether the circumstances fulfill the definition war. This was the court’s opinion in the case Kawasaki KKK versus Bantham Steamship in 1937. This case concerned the legality of cancellation of a charterparty. Court emphasized the importance of prevailing facts, regardless of the possible declaration of war or the status of diplomatic relationships between the countries in question.

Another rather well known case, which can share light on this definition, was about civil war in Lebanon. The court developed a three-stage test for determining whether the incident constituted a civil war: 1) Does the case really involve a conflict between opposing sides? 2) What are the objectives of the two sides and what means do they use to achieve them? 3) To what extent does the conflict affect public order and the lives of the inhabitants?

Cargo Insurance Cover for war perils

Institute Cargo Clauses (ICC) – both 1982 and the latest 2009 wordings – are clear in respect of war and strikes risks. The insurance does not cover loss damage or expense arising from war, civil war, revolution, rebellion, insurrection or civil strife arising therefrom, or any hostile act by or against a belligerent power. Nor does it cover any loss or damage due to derelict weapons of war. This exclusion is the same in all three ICC wordings – in A, B and C. So the starting point is that all war perils are excluded.

Now we need to make a distinction between war on land and waterborne war perils. With the exception of postal deliveries (see Institute War Clauses (Sendings by Post)) war on land is a risk, which is not covered even with the Institute War Clauses (Cargo). Why is that? Reason is that war on land has been considered so effective that cover for it is subject to separate underwriting and also usually matter of arranging facultative reinsurance for specific transport in question.

At sea, things are different

What does the Institute War Clauses (Cargo) then cover? For starters one need to keep in mind that the duration of the cover is limited to the time the subject matter insured is at sea or on board ocean going vessel. The Clause covers loss of or damage to the subject matter insured caused by: ”war, civil war, revolution, rebellion, insurrection, or civil strife arising therefrom or any hostile act by or against a belligerent power”.

Furthermore the Institute War Clauses (Cargo) cover capture, seizure, arrest, restraint or detainment arising from the aforementioned circumstances. There is a bit of a gap in the cover as the war clauses cover only for the aforementioned in case these risks are consequent on war. This means that losses by seizure or restraint by governmental authorities under customs regulations, or breach of embargoes etc. are outside the normal cover by the Institute War Clauses (Cargo). The same applies to loss of an adventure caused by war or other above mentioned perils.

Bumped into a WWII mine?

Lastly, Institute War Clauses (Cargo) cover losses caused by “derelict mines, torpedoes, bombs or other derelict weapons of war. “ The – so to say – normal use of the aforementioned and the resulting cargo loss is covered with the § 1.1 of the War Clauses. In 1958 it was recorded that 446 vessels had been damaged or sunk as a result of mines since the World War II.

In addition to this in the previous two years 250 floating mines were reported by ships at sea or by shore stations (Dunt, 2009, London). In order to avoid any discussions if the losses caused by derelict weapons of war are to be covered or not, these perils were included in the War Clauses (Cargo) cover. The time between the actual act of war (e.g. bombing or laying the mines) and the loss caused by derelict weapon of war is not relevant when judging if the loss was or was not caused by a war peril.

Worth remembering

I would emphasize the following:

  • Definition of war is no clear-cut case. Transports to high risk areas are usually subject to separate underwriting decision prior commencement of transport - at least in respect of War and Strikes cover. Please check this with your insurer. This topic is a separate one and I shall get back to this later on.
  • War on land is always excluded. This concerns also derelict weapons of war.
  • As the War risks (waterborne) are usually covered with an annual open policy there is Institute War Risk Cancellation Clause (1/12/1982), which grants the insurer to cancel the war risk cover with seven days’ notice. This does not apply to shipments that have commenced prior cancellation. If you have even the slightest doubt whether particular country and war and strikes risk require separate agreement with your insurer, please contact your insurance company well before the commencement of the transport.

Kari Koljonen