The London market is clearly the dominant marine insurance market in the world, and difficult and complex risks are to a large extent insured by members of this market. This means that the London market has a powerful influence on both premiums and the coverage. It is also in London that the standard clauses, the Institute Clauses, for various forms of marine insurance are established. These clauses are applied throughout the world.
In Scandinavia, it is custom that our Swedish cargo clauses are used for imports and transport within Scandinavia, and the British clauses for exports. The advantage of using the British insurance clauses is that they are understood in most countries and that their content is well known in worldwide business and transport sectors. Against the background of the British influence in the marine insurance sector, it was natural that overhaul and updating of the Institute Clauses would be a task for Lloyd’s Market Association (LMA) * and the Joint Cargo Committee (‘JCC’).**
When, more than 25 years ago, the radical step of introducing the 1982 Institute Cargo Clauses was taken, there were considerable misgivings that the custom and practice developed in courts and in the context of marine insurance since the beginning of the twentieth century would result in legal uncertainties and a greater number of legal disputes.
However, the result was completely different. The clear and lucid form of the 1982 clauses has over the years meant remarkably few disputes over insurance cover. But nothing lasts forever, and an overhaul was introduced at the beginning of 2006 when the LMA sent out a questionnaire to partners throughout the world.
A working group consisting of members of the JCC was set up to analyse the responses. This resulted in a document that the JCC distributed worldwide to interested organisations in the marine insurance sector to collect their comments on the proposed changes in the text of the Clauses. In this way, it was ensured that constructive proposals from markets other than London were included. The final version was ready by the end of 2008, and 1 January 2009 was set as the date for the revised clauses to come into effect.
Revised Institute Cargo Clauses 2009
To promote clarity, there has been some updating of the language used in the Clauses. In particular:
- A definition of the ‘Assured’ has been inserted for extra clarity. It now expressly includes either the person by or on whose behalf the contract of insurance was effected or assignee.
- The terms ‘goods’ and ‘cargo’ does not accurately describe the range and type of cargoes so they have been replaced by ‘subject-matter insured’.
- The term ‘underwriters’ has been replaced by ‘insurers’.
- The side headings to the Clauses have been modified and placed in a more conventional manner above each of the Clauses.
- The more modern term ‘employees’ has replaced the rather archaic term ‘servants’ to be a more understandable term for use of the Clauses worldwide and does not alter the legal position of the rights of the assured.
The most important commercial changes to reflect modern practice
- Insufficiency of Packing or Preparation - the previous clause excluded insufficiency of packing or preparation even when it was beyond the control of the assured and arose accidentally after the insurance had attached. This felt inappropriate and is a risk that should be acceptable to insurers and an assured would expect it to be covered under a marine policy.
This is now covered as packing by third party packers during the currency of the transit. So, the new clause is limited to cases where the assured or their employees are themselves responsible for the poor packing or preparation, at whatever time it is carried out. The new clause also sets out the standard by which any insufficiency or unsuitability is to be judged- the packing or preparation must be sufficient ‘to withstand the ordinary incidents of the insured transit.’
- Terrorism – the terrorism exclusion has been extended to reflect the wide range of threats that may now be encountered, and the range of motives that may be behind an attack. The clause now requires the act of terrorism to be undertaken by a person acting on behalf of, or in connection with, an organization and does not apply to the actions of a ‘lone terrorist’.
The fourth part of the clause has been widened to exclude not only ‘political’ but also acts motivated by ‘ideological’ or ‘religious’ motives. It felt necessary as the American Institute Clauses already incorporated the term ‘ideological’. It them seemed urgent and important to include ‘religious’ motives.
- Duration – Transit Clause Under the 1982 Clauses, there was no cover until the goods had ‘left’ the warehouse, so it would only have been insured if an accident had happened outside the warehouse. As it has been commonplace for brokers’ wording to extend coverage to include loading and unloading operations, this extension has now been brought into the standard cover and in line with continental European practise. The insurance now attaches ‘from the time the subject-matter insured is first moved in the warehouse… for the purpose of the immediate loading’. This connects the ‘first movement’ of the goods closely in time to the loading of the conveyance to be used for the insured transit.
Cover does not extend to temporary storage prior to transit or to such storage in holding areas within a warehouse. Similarly, the transit now ceases on completion of unloading from the vehicle at the final warehouse rather than delivery to as stated in the previous clauses. The clause has now become more logical in that cover is provided also within the warehouse and not only after the subject-matter insured has ‘left’ the warehouse. There is also a new part in the clause clarifying that the insurance terminates when the assured or their employees elect to use any carrying vehicle or other conveyance or any container for storage other than in the ordinary course of transit. This means that the management need to be aware of decisions made at the warehouse floor level because of the impact on the coverage.
- Change of voyage
The assured is, after the attachment of the insurance, entitled to change the destination. In order to get the voyage covered the insurers must promptly be notified for rates and terms to be agreed. If a loss should occur, prior to an agreement being obtained, cover may be provided but only if cover would have been available at a reasonable commercial market rate on reasonable market terms.
These elements, in the revised clause, clearly explain the circumstances in which cover may be available from underwriters but also the action the assured must take in order to secure his interest. The old version was using the term ‘held covered’ which often was misunderstood by the assureds as providing cover, even it would not be possible.
- The Unseaworthiness Exclusion
This clause has been modified, in favour of the assured, to limit the exclusion in relation to unfitness of vehicles or containers to cases where the assured or their employees are privy to such unfitness.
- The Insolvency Exclusion
The exclusion has been reduced in scope so that the innocent assured or assignee is still protected by the policy in the event of financial default or insolvency bringing the voyage to an end. The exclusion will now only apply where the assured is aware, or should have been aware, that financial default may interrupt the voyage and the exclusion will not apply at all when the insurance has been assigned to a third party in good faith.
The new changes in the British clauses do not necessarily mean that the Swedish cargo clauses will have to be completely revised. The Swedish clauses have previously undergone further interpretation of, among others, the ‘Transit Clause’, and it is more probable that the Swedish insurance market will eventually revise individual clauses where it is deemed to be necessary.
Over six months after the British clauses came into effect, we in Sweden are seeing that many insurers, brokers, and assured are enquiring about and applying the new clauses. Despite this positive acceptance, it is likely that the 1982 clauses will continue to apply in parallel with the 2009 clauses for a long while, perhaps mainly in clause referrals in letters of credit. Presumably, in these cases as in other uncertain situations, interpretation according to the new and more generous 2009 clauses will be used in cases of damage.
There will certainly be grey areas and uncertainties in the 2009 British clauses that will lead to legal disputes but in view of the limited number of disputes after the introduction of the 1982 clauses, there is little concern about an increased number of disputes. Hopefully, the opposite will take place, and the 2009 clauses will be able to meet the need for insurance cover sought by businesses throughout the world.
* Lloyd’s Market Association (LMA) – provides professional, technical support the Underwriting community.
** Joint Cargo Committee (JCC) – comprises underwriting representatives from both the Lloyd’s Market Association and the International Underwriting Association.
Ulrica Carlson & Jörgen Fredrikson