Guide to Marine Insurance-Part 7

Institute Cargo Clauses (ICC)

The 1982 version of ICC A/B/C/Air and associated War/Strikes clauses have been replaced by the 2009 edition. 

Other Clauses such as Institute Frozen Food/Bulk Oil etc Clauses are undergoing revision and will be released by the Joint Cargo Committee (JCC) soon.

Many markets are yet to adopt the 2009 edition and continue to use the 1982 edition.

This article examines the 1982 edition-a later article in this series will examine  2009 edition

 General Notes 

 ICC A is an all risks form. The emphasis is on risk and therefore any fortuitous loss or damage is covered unless any of the exclusions operate.

 ICC B and C are named perils Clauses.

Coverage provided by ICC (A), (B) and (C)- (applicable to both 1982 and 2009 editions):

1. Actual Total Loss 
2. Constructive Total Loss[1] 
3. Particular Average i.e. partial loss to the cargo by an insured peril in case of B and   C and by any fortuity/accidental cause(s) in the case of ICC (A) 
4. General Average Sacrifice 
5. General Average and Salvage Contributions 
6. Collision Liability (Both to Blame
7. Expenses such as :

·          Survey Fee and Reconditioning costs

·          Sue & Labour expenses (those incurred to prevent/minimize a loss)[2]

·          Forwarding Expenses (when transit is terminated short of destination)

Though not specified as such all these clauses only cover physical loss of or damage to goods so that claim  on account of goods (otherwise in a sound condition) arriving late so as to miss the Christmas sales will not be admissible under these clauses.

ICC (A) is an all risks form subject to exclusions whereas (B) and (C) are named-perils form (and also contain a set of exclusions). This has an implication of burden of proof as detailed below

All Risks is a legal term-it does not literally mean all risks-the loss or damage must be caused by a fortuity and there are named exclusions.

Burden of Proof:

The assured must prove, on a balance of probabilities that accidental or fortuitous loss or damage has occurred during the period of  transit covered by the policy.” However in an all risk form such as ICC (A), the assured does not have to prove the exact nature of the peril that caused his loss.

Under the named-perils form such as ICC (B) and (C) the assured is required to prove on a balance of probabilities that the loss was reasonably attributable to one of the listed perils (compare this with the position in ICC (A) Clauses).

The Insurer’s burden of proof: Once the assured overcomes the initial hurdle of proving a fortuity (A) or a named peril (B or C), the burden then shifts to the Insurer to prove an exclusion-which is a heavier burden under A clauses.

In practical terms, the assured discharges his burden of proof by means of documentation viz., a clean B/L and a damage/shortage report at destination.

Exclusions:

In ICC (A) the following are the exclusions:

4.1         Wilful misconduct of the assured

4.2         Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear

4.3       Insufficiency of packing/unsuitability of packing or preparation of the cargo (includingstowage in a container if carried out  prior to attachment of the insurance of by the assured or his servants

4.4         Inherent Vice or nature of cargo

4.5         Loss damage expense caused by delay even if delay is due to an insured peril

4.6       Exclusion relating to financial insolvency or default of shipowners/managers/charterers/operators of the vessels

4.7         Nuclear etc exclusion

4.8         Unseaworthiness/Unfitness

4.9         War exclusion

4.10       Strikes exclusion

Exclusions 6 and 7 relate to war and strikes. There is a separate war and strikes clauses available at an additonal premium. It should be noted that Institute War and Institute Strike Clauses do not override all the perils excluded in 6  and 7 and only provide for war and war like perils. 

There are add-on clauses (non-Institute or manuscript wordings to override or water down some of these exclusions)-see later part of this article.

Note: These exclusions are common to A, B and C clauses but ICC B and C have one more exclusion “deliberate damage or destruction…… by an act of any person(s).”

Duration of Cover

8 8.1      This insurance attaches from the time the goods leave the warehouse or place of storage at the place named herein for the commencement of the transit, continues during the ordinary course of transit and terminates either

8.1.1      on delivery to the Consignees' or other final warehouse or place of storage at the destination named herein,

8.1.2      on delivery to any other warehouse or place of storage, whether prior to or at the destination named herein, which the Assured elect to use either

8.1.2.        for storage other than in the ordinary course of transit or

8.1.2.2      for allocation or distribution,

or

8.1.3       on the expiry of 60 days after completion of discharge overside of the goods hereby insured from the oversea vessel at the final port of discharge,

          

 whichever shall first occur.

8.2     If, after discharge overside from the oversea vessel at the final port of discharge, but prior to termination of this insurance, the goods are to be forwarded to a destination other than that to which they are insured hereunder, this insurance, whilst remaining subject to termination as provided for above, shall not extend beyond the commencement of transit to such other destination.

8.3     This insurance shall remain in force (subject to termination as provided for above and to the provisions of Clause 9 below) during delay beyond the control of the Assured, any deviation, forced discharge, reshipment or transhipment and during any variation of the adventure arising from the exercise of a liberty granted to shipowners or charterers under the contract of affreightment.

Explanation

When does the cover attach? 

This happens when goods leave the warehouse/place of storage for commencement of transit. If the lorry carrying the goods gets engulfed within the warehouse complex, there is no cover since the goods have to leave the gate of the factory or the warehouse (the “threshold test”). Loading onto the vehicle parked outside the gate is covered. 

Brokers often add the Loading and Unloading Clause in order to override this restriction in the 1982 edition of ICC.

When does the cover terminate? It will be noted that Clause 8 provides for a number of situations when cover might terminate:

When goods are delivered to the Consignees’ warehouse or any place of storage. Thus if goods are unloaded at port of discharge but the assured decides to put the goods in a bonded warehouse for his convenience (e.g. lack of storage space in his warehouse/factory or waiting for exchange rate to be in his favour before he clears the goods from customs etc), cover terminates when goods enter the bonded warehouse even though it is not the final intended warehouse or 60 days is still not over.

If the assured decides to store the goods in any warehouse for the purpose of allocation/distribution of his goods or simply for storage , again the cover terminates even before reaching the final intended warehouse.

Finally, there is a cap of 60 days from date of discharge from oversea vessel. However this 60 days is only a limit.  For example if on the 15^th day, the assured decides to bond the goods in a bonded warehouse, cover terminates.

The duration clause also uses a phrase “ordinary course of transit”. What does this phrase mean? In marine cargo insurance it is recognised that during the transportation of goods there would be incidental storages which are in the ordinary course of transit. For example goods will be in port premises  pending customs examination, in Carriers’ warehouses etc. So long as the goods are in their ordinary course of transit, cover continues. A good example of a storage which is not in the ordinary course of transit is storage for the convenience of the assured.

Clause 8.2: if the assured decides to change the original destination, then cover ceases when goods leave the port for commencement of transit to the new destination. In such cases the assured should request the insurer to hold him covered.

8.3: the duration clause adds comforting held covered provisions in this section-any delay beyond the control of the assured, deviation, transhipment etc does not terminate the cover.

To understand the duration of cover, Clause 8 should be read along with Clauses 9 and 10.

Though all the three Clauses viz. A, B and C provide for warehouse to warehouse cover, this is to be read along with the insurable interest clause. Thus if the assured is an FOB seller, he does not automatically get the benefit of the warehouse to warehouse clause  i.e., the risk  would cease when he loads the cargo on board the oversea vessel.  Sometimes Insurers modify the duration of cover in ICC by writing “no cover after discharge” or restricting cover only upto port of discharge and excluding inland transit to final destination. In other words the Duration stated in the Certificate of Insurance would override the printed clause (i.e, the duration clause containing in ICC providing a warehouse to warehouse cover). For example, the Certificate may provide for cover until unloading from the vessel at discharge port.

Institute Cargo Clauses-B and C:

	ICC(B)	ICC (C)
Loss of or damage to the subject-matter  insured reasonably attributable to:
fire or explosion	V	V
vessel or craft being  stranded grounded sunk or capsized	V	V
overturning or derailment  of land conveyance	V	V
collision or contact of vessel craft or conveyance with any	V	V
discharge of cargo at a  port of distress	V	V
earthquake volcanic  eruption or lightning,	V	X
Loss of or damage to the subject-matter insured caused by:
general average sacrifice	V	V
jettison or washing  overboard	V	Only Jettison, not W.O.B
entry of sea lake or river  water into vessel craft  hold conveyance container liftvan or place of storage,	V	X
total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft	V	X

ICC B and C are often used for used /second-hand goods, bulk cargoes.

Following is a list of commonly used add on covers (called non-Institute or broker wordings) used  along with ICC:

Standard Add On covers	Institute Cargo Clauses (A)	Remarks
Airfreight Replacement Clause/Expediting Expenses Clause	Not covered if the original insured transit was by sea	Often there is a cap on the recoverable amount.
Brand Protection Clause	ICC covers only physical loss or damage and not protection of brand names	Provides protection by giving a final say to the Assured regarding disposal of damaged cargo as salvage. Again various versions of this clause are available.
Buyer’s Interest (Contingency) coverage	Not provided for	-do-
Concealed Damage (also called Delayed Discovery of Loss Clause)	Burden of proof on Assured to prove that the loss took place during the insured period	Concealed Loss covered under the policy subject to discovery of loss/reporting of loss within 30/60 days (standard is 30 days but sometimes extended to 60 days  by the insurer if there is a valid reason for this request)
Difference in Conditions coverage	Not provided for	-do-
Full GA Clause	GA and Salvage charges are covered  but subject to under-insurance	No underinsurance applied
Insolvency of shipowners, charterers etc	Excluded (see Clause 4.6)	Exclusion wording significantly modified in favour of the Assured
Insufficiency of Packing	Excluded (See Clause 4.3)	The insurer cannot invoke the defence of insufficiency if the Assured’s privity was not involved. For example import cargo where cargo is packed by seller and not the assured buyer
Loading and Unloading Clause	It is often not realised but ICC(A) does not include loading risks inside the warehouse	The loading/ Unloading clause will provide this cover whether loading inside or outside your warehouse
Presentation Packing/Packing Clauses	ICC (A) covers goods and not the packing thereof	Packing itself covered so that repacking and/or repair charges are part of the claim
Removal of Debris-often a severe burden on the assured	Not covered	Covered upto (usually) 20% of the sum insured.
Return Cargo Clause	Not provided for
Seller’s Interest (Contingency) coverage	Not provided for	There are different versions of this clause and utmost care need to be exercised to understand the cover being provided.
Shortage and/or Non Delivery from Seal intact containers	No coverage unless Assured is able to prove a skilful pilferage. Again the burden of proving the loss took place during the currency of the policy is on the assured if the seal of the container arrives intact	Such a clause has a limited value-read Insuring Cargoes for a detailed comemntary
Storage at forwarder’s consolidators, hauliers, warehousemen, exhibition, demonstration, trade fair or show premises	Not always provided for unless within the 'ordinary course of transit'	The Open Cover should have a  Duration of Cover wording that overrides the duration of the ICC

There are a number of manuscript wordings but the above is a list of the more popular ones.

In Marine Insurance, the assured is under a duty to take all reasonable measures to avert or minimise a loss (See Duty of the Assured clause in ICC A, B and C/MIA S. 78(4). ICC A, B and C provide for such expenses, reasonably incurred to be reimbursed if such expenses were taken as there was an imminent risk of a loss/damage from an insured peril, such costs were incurred to save the insured cargo and these costs were extrodinary costs.

Note: The book Insuring Cargoes contains a very detailed chaper on Institute Cargo Clauses supported by caselaws from English and American courts. It also critically examines some of the broker woredings.

To be continued

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[1] A CTL occurs when the subject matter insured is so damaged that either:

        (a)   its actual total loss appears to be unavoidable, or

       (b)   in order to prevent it from becoming a total loss, expenditure greater than its value when preserved would have to be incurred.

[2] It is the duty of an Assured to act at all times as a prudent uninsured, and to take whatever steps are reasonably and properly necessary in order to avoid or minimise an insured loss. Even if such steps are not successful and the insured loss is not avoided or minimised the Assured is nonetheless entitled to recover his sue and labour costs and expenses in addition to his loss, subject only to the sue and labour expenses being limited again to the value insured.