Charges and Expenses (Extra Charges) in Marine Cargo Insurance

The Institute Cargo Clauses provides as under:

This insurance covers all risks of loss of or damage to the subject-matter insured except as provided in Clauses 4, 5, 6 and 7 below.

You will note that there is no mention of expenses or charges-ICC only refers to loss or damage.  Thus, barring certain expenses in the nature of General Average, sue & labour and Forwarding Charges, Institute Clauses do not necessarily provide for a reimbursement of expense/charges.   Therefore considerable care needs to be taken when presented with a claim towards certain charges or expenses incurred.

What then is the practice in marine insurance in respect of expenses/charges?

As far as marine insurance is concerned, cost of proving a claim is admissible if the claim itself is found to be admissible.  These are typically survey fee and sale charges which are added to the claim amount.  These are called Extra Charges.

Extracts from Rules of Practice of the Association of Average Adjusters (UK) 1997 [Amended 2008]

[1] provides as under:

A9: Franchise Charges

The expense of protest, survey, and other proofs of loss, including the commission or other expenses of a sale by auction, are not admitted to make up the percentage of a claim; and are only paid by the underwriters in case the loss amounts to a claim without them.

It is important to distinguish such extra charges with sue & labour expenses. The latter is supplementary to the contract i.e., you can pay a total loss claim upto the sum insured and also pay, in addition,  sue & labour expenses with the total indemnity exceeding the sum insured.

Further these sue & labour charge is incurred short of destination and is incurred for both avoiding and minimising a claim under the policy. A sue & labour expense is payable if reasonably incurred even if such efforts are not successful in averting or minimising an insured loss

On the other hand, Extra Charges follow the principle of “pay if payable” –they cannot be added to the claim to attain any franchise or deductible in the policy. These charges can be incurred at any place including at the final warehouse at destination. Unlike sue & labour expenses, the total indemnity cannot exceed the sum insured.

The following guidelines will serve to illustrate to what extent such Extra Charges are reimbursable by the insurer:

Reconditioning cost at destination (could be a wharf or even the final warehouse of the consignee). These are payable if the claim itself is payable and serve, according to Ken Goodacre, the “dual purpose of ascertaining the loss.”

On the other hand if sound cargo is repackaged or packages are repaired at final warehouse, then this is not a recoverable expense as it is not to the benefit of the underwriters- cargo having already “attained safety”.

Similarly if packages are damaged and are opened to see if there is a damage to the  contents, these expenses are not recoverable if the cargo is found to be damaged (unless the packing itself is clearly insured under the policy)

Extra Cost of handling damaged cargo, labour cost of separation of sound and damaged cargo (even if at final warehouse), reconditioning cargo even if at final destination , labour cost incurred in collecting sweepings and cost of re-bagging them are all recoverable as Extra Charges in marine insurance. However care should be taken as under:

• These charges should be paid only if solely incurred following the loss/damage to the cargo

• These expenses should be distinguished from ordinary /normal expenses which the assured has to anyway incur. In other words only extra-ordinary expenses should be paid (e.g., normal transportation charges or labour charges or stevedoring charges are anyway incurred but if these costs increased due to the damage to cargo, then the “extra” so incurred is reimbursable)

• These costs cannot be added to the claim amount to attain the franchise or deducible.

• These expenses are paid if claim is payable

• Total indemnity (cargo claim plus extra charges) cannot exceed the sum insured.

Sometimes it is prudent for the broker or the assured to have special clauses in the Open Cover in respect of certain charges such as Sorting/Segregation Clause and Container Demurrage charges Clause to lend contract certainty in the policy.  Similarly clarity in the policy regarding cost of conducting tests (e.g. a non-destructive test) is recommended. Extra costs such as the above not only assist in establishing whether a claim is payable and if so to what extent, but may also serve the purpose of providing evidence against the offending carrier and/or minimising the claim. 

For example, see the following non-Institute Clauses:

Container Demurrage Charges Clause

This policy shall cover demurrage charges and/or late penalties assessed against, and paid by the Assured for late return of containers when said containers are retained by the Assured at the instruction of the Underwrites for inspection by the underwriters Surveyor in investigation of loss or damage recoverable under this policy.

Note: Even in the absence of Container Demurrage Charges Clause, it is often reasonable to pay for such charges when the buyer has detained the container to enable the surveyor to examine the container. This could be good evidence against the carrier too.

Sorting Charges: In the event of the Assured and/or consignee complying with the surveyor's instructions to separate shipping packages showing signs of external damage from the sound packages to ascertain possible loss arising from a peril insured against, such expenses as approved by the surveyor shall be for the account of Underwriters even though a claim may not subsequently result hereunder.

Note: There are many versions of Sorting Charges or Segregation Charges Clauses including some very recent versions emanating from the London market.

---

[1] While some textbooks consider this rule to apply only to survey fee, Ken Goodacre interprets this rule to mean that there could be other types of charges as well