Cargo Claims and

Recoveries
Module 3

Classification: Confidential
 2

Introduction
 3

Contents
Introduction 2
Cargo Clauses Cover Explained 5
Cargo Clauses Exclusions Explained 17
The Insured Transit 26
Warranties 33
Types of Loss and Measures of Indemnity 43
Dealing with Charges 53
Practical Claims Adjustment 60
Recoveries 66
General Average and Salvage 101
Appendix 131
 4

The Lloyd’s Agency Department is committed Following numerous requests, Lloyd’s has
to raising service standards and has devised made the Cargo Claims & Recoveries –
two comprehensive marine cargo Module 3 educational material available to
examination programmes which are clients of the Lloyd’s Agency Network. This
compulsory for all Lloyd’s Agents. module is also available online at
www.lloyds.com/agency/training.
This publication, Cargo Claims and
Recoveries – Module 3, covers three inter- Lloyd’s Agency Department would like to
related subjects: thank the Lloyd’s Market Association (LMA)
and the International Underwriting
■ The handling and adjustment of claims Association (IUA) for granting us permission
under policies of insurance on cargo. to include the Institute Cargo Clauses within
this publication.
■ The handling of recovery actions against
third parties. Lloyd’s would also like to thank Comité
Maritime International for allowing us to
■ General average and salvage. include the York/Antwerp Rules 1994 in this
This module and examination is aimed at material.
those Lloyd’s Agents who settle and/or adjust The Lloyd’s Agency Department welcomes
cargo claims or who undertake recovery any comments and/or corrections to this
actions on behalf of underwriters or other educational material. Please email to Lloyds-
principals. It is however recommended that [email protected].
all Agents study for this examination as it will
broaden their knowledge of cargo insurance Disclaimer
and help them develop a clear understanding
of what underwriters and other principals This document is intended for general
expect from a loss/damage survey. information purposes only. Whilst all care has
been taken to ensure the accuracy of the
This module gives Agents a sound information Lloyd’s does not accept any
knowledge of the main cargo clauses, an responsibility for any errors or omissions.
understanding of the correct principles to be Lloyd’s does not accept any responsibility or
used when adjusting and presenting a claim liability for any loss to any person acting or
on the policy, a good working knowledge of refraining from action as the result of, but not
the main liability regimes that apply in limited to, any statement, fact, figure,
recoveries against sea, air and road carriers expression of opinion or belief contained in
and a grasp of the principles that underlie this document.
general average and salvage.

The examination itself (that is only available

to practising Lloyd’s Agents) consists of two KEY
parts:

■ Part one – A theoretical paper consisting of

50 multiple choice questions.

■ Part two – A practical paper where the

candidate is asked to adjust claims on cargo
policies and carry out other practical
exercises in connection with cargo claims
and general average. For this part of the Helpful hints
Points to be Points to
examination, candidates have available to and
aware of consider
them copies of the Institute Cargo Clauses guidelines
(ICC) and other relevant information, such as
the York/Antwerp Rules, to reflect conditions
in an office environment.
 5

Chapter 1
Cargo Clauses Cover
Explained
 6

Contents
1.1. Introduction 7
1.2. All Risks – Institute Cargo Clauses (A) (1/1/09) 7
1.3. Restricted or limited conditions – Institute Cargo Clauses (B) and (C) (1/1/09) 8
1.4. Trade and special clauses 10
1.5. Institute Bulk Oil Clauses (1/2/83) 10
1.6. Damage to machines / manufactured items 12
1.7. Theft, pilferage and non-delivery 14
1.8. Alternatives and adaptations to Institute Cargo Clauses 15
1.9. Insurable interest and assignment 15
1.10. Institute Cargo Clauses (Air) 16
1.11. Packaging 16
 7

1.1. Introduction are cosmetic and are designed to add clarity.

Cover has been changed in several important
All policies of insurance on cargo will set out respects, however, and claims adjusters will
the risks (perils) that the underwriters provide need to be familiar with both sets of clauses.
cover against. Sometimes the cover is very In this manual, references to Institute Cargo
wide, encompassing most types of risk that a Clauses 1/1/82 are shown in this dark blue
cargo might encounter during the course of colour. References to Institute Cargo Clauses
its transit. Sometimes the cover is quite 1/1/09 are shown in this light blue colour. The
limited, with underwriters agreeing to insure 1/1/09 clauses are the ones quoted in this
the cargo against only a short list of named manual. Where they differ significantly from
perils. Whenever dealing with a claim or the 1/1/82 clauses, the differences are
potential claim under a cargo policy, the first explained in the text. Otherwise, it may be
things to establish are the terms and assumed that the cover referred to is the
conditions under which the cargo is insured same in both sets of clauses or that the
to check that the loss or damage is actually differences in wording are so slight as to
covered. make no material difference to the meaning
For cargoes insured at Lloyd’s, or in the or application of the clause.
London market, it will usually be the case that
the insurance will be subject to Institute 1.2. All Risks – Institute Cargo
Cargo Clauses (ICC). These are standard Clauses (A) (1/1/09)
wordings agreed by the London market and The (A) clauses provide the widest cover of
are widely used, or closely copied, around all of the Institute Cargo Clauses, stating:
the world. Except where stated, the content
of this chapter assumes that Institute clauses “This insurance covers all risks of loss of or
apply. damage to the subject-matter insured except
as excluded by the provisions of Clauses 4,
In 1982, ICC underwent a substantial 5, 6 and 7 below”
revision. The purpose was not to radically
change the cover provided; it was to rewrite (Clauses 4, 5, 6 and 7 list certain types of
the clauses in simplified language that would loss or damage that are excluded (i.e. not
be more easily understood by Assureds covered) by the policy. These are dealt with
around the world: in chapter 2 of this manual.
a. who were not familiar with the legal and The term ‘All Risks’, although very wide, does
practical technicalities of marine have limitations. It does not mean that all loss
insurance, and; or damage, however it occurs, is covered. ‘All
b. for whom English was not a first language. Risks’ covers things that happen
unexpectedly or by accident or by chance (ie
The 1/1/82 clauses that resulted have been fortuitous damage). It does not cover things
widely used around the world. The ICC were that are inevitable or almost certain to
revised in 2008 and reissued as ICC 1/1/09 happen or things that it would be within the
at the start of 2009. control of the Assured to prevent.
Confusingly, both the old and the new What is covered is all risks of loss or
clauses will exist side by side, although it is damage. This means physical loss or
expected that the 1/1/09 version will be damage and does not include purely financial
favoured by Assureds over the 1/1/82 version or consequential loss. Thus, loss of market
as they are more advantageous to Assureds. by goods not arriving in time for the
Whenever considering a claim it is therefore Christmas sales would not be covered, even
very important to ensure you know which if it was a fortuitous, unexpected event that
version of the clauses will be applicable, caused the goods to miss their market.
which should be clear from the certificate or
other evidence of insurance. Furthermore, it is loss or damage to the
subject- matter insured that is covered, i.e.
Fortunately, the differences between the two not loss or damage to anything else. Thus, if
versions are not great. Most of the changes the policy covers drums of oil and those
 8

drums become damaged and leak, causing

damage to an adjacent cargo, the liability for
the damage to the adjacent cargo is not
covered as that is not the subject-matter
insured. Later in this chapter we will consider
the situation where the cargo is not damaged
but the packing material is, and what
coverage there may or may not be for any
associated costs.

Under an All Risks policy, there is no

requirement for the Assured to show exactly
how the loss or damage occurred. It only
needs to be shown that the loss or damage is
fortuitous. Thus, if cargo was shipped in
sound condition and thereafter goes missing
or is delivered in damaged condition, there is,
on the face of it, a claim on the policy. The
underwriter will avoid the claim only if it can
be shown that the loss or damage was
caused by one of the events listed in the
Exclusions in clauses 4, 5, 6 and 7 (see
chapter 2).

1.3. Restricted or limited conditions –

Institute Cargo Clauses (B) and (C)
(1/1/09)
An Assured who wishes to insure against
serious events only may, for a cheaper
premium, opt for the restricted cover that is
provided in the (B) and (C) clauses. These,
as can be seen from the table below, are
named perils policies, i.e. there is a specific
list of named perils, as compared with the (A)
clauses which are all risks.

As discussed above, under the (A) clauses

the insured only has to show that something
occurred that was fortuitous, causing loss or
damage to the goods. Under a named peril
policy of any sort it has to be shown positively
what happened to the cargo and how it can
be linked to one of the named perils.
 9

ICC B ICC C

1.1 loss of or damage to the subject-matter 1.1 loss of or damage to the subject-matter
insured reasonably attributable to: insured reasonably attributable to:
1.1.1 fire or explosion 1.1.1 fire or explosion
1.1.2 vessel or craft being stranded, grounded, 1.1.2 vessel or craft being stranded, grounded,
sunk or capsized sunk or capsized
1.1.3 overturning or derailment of land 1.1.3 overturning or derailment of land
conveyance conveyance
1.1.4 collision or contact of vessel, craft or 1.1.4 collision or contact of vessel, craft or
conveyance with any external object other than conveyance with any external object other than
water water
1.1.5 discharge of cargo at a port of distress 1.1.5 discharge of cargo at a port of distress
1.1.6 earthquake, volcanic eruption or lightning 1.2 loss of or damage to the subject-matter
1.2 loss of or damage to the subject-matter insured caused by:
insured caused by: 1.2.1 general average sacrifice
1.2.1 general average sacrifice 1.2.2 jettison
1.2.2 jettison or washing overboard
1.2.3 entry of sea, lake or river water into
vessel, craft, hold, conveyance, container,
liftvan or place of storage
1.3 total loss of any package lost overboard or
dropped whilst loading on to, or unloading
from, vessel or craft
(The list of perils is exactly the same in the 1/1/82 (B) and (C) clauses.)

It can be seen from the above that the three This is best illustrated by some examples.
perils in 1.1.6, plus washing overboard in
1.2.2 and the perils in both 1.2.3 and 1.3 are Example one
in the (B) clauses but not in the (C) clauses,
otherwise the two sets of clauses are the The cargo is in a storage shed at an
same. intermediate place on the insured transit. A
fire in part of the shed causes the roof to
In 1.1, it is loss or damage that is reasonably collapse, damaging the cargo. The cargo
attributable to the perils named in that section itself is not touched by the fire. The damage
that is covered. These words can be given a to the cargo is thus not caused by fire but is
wider construction than if it merely said reasonably attributable to the fire.
caused by. If it is reasonable to attribute the
loss or damage to one of the listed perils, Example two
then it falls within the policy. Normally the
An earthquake beneath the seabed causes a
concept of proximate cause applies in
tidal wave that rolls for a hundred kilometres
insurance where you have to identify the
across the sea. The vessel on which the
dominant and effective cause of the loss. The
insured cargo is stowed is tossed violently on
use of the words “reasonably attributable”
the wave, causing the stow to collapse,
makes it far easier for an insured to show
damaging the cargo. The damage is not
how the ultimate damage to the cargo was
caused by the earthquake but is reasonably
somehow linked to a named peril, as the link
attributable to it.
can be far looser than with words such as
caused by.
 10

Example three 1.4. Trade and special clauses

The railway wagon carrying the insured cargo A number of trade associations have
is derailed. There is no damage to the cargo negotiated variations of Institute Cargo
from the derailment. The cargo has to be Clauses (A), (B) and (C) for use within their
transferred to a lorry to continue its transit to own particular trades. There are tailored
the port. Some of the cargo is stolen while clauses for:
being transferred from the derailed train to
the lorry. This is a loss by theft which is not ■ Frozen foods
one of the perils insured against under B or C ■ Coal
clauses. However, it is reasonable to attribute
the theft to the derailment of the train and the ■ Bulk oil
Assured should therefore recover as a loss
‘reasonably attributable to derailment of land ■ Commodity trades
conveyance’.
■ Jute
These are fairly extreme examples. What is
reasonable in any particular case will always ■ Natural rubber
depend on the circumstances of that case
■ Oils, seeds and fats
and may sometimes be a matter of opinion.
The examples demonstrate that the term ■ Frozen meat
‘reasonably attributable to’ is capable of
being given quite a wide interpretation. ■ Timber
Part of the surveyor’s role will be to find These are all closely modelled on the
evidence of what actually happened so that standard Institute Cargo Clauses but with
the story can be pieced together. adaptations relevant to the particular trades
concerned. To go into each set of trade
When cargo is insured under the (B) or (C) clauses in detail would be beyond the scope
clauses, the burden of proof is always on the of this work. However, as examples of the
Assured to show that one of the specifically types of specific variation involved, the Coal
named perils has operated to bring about the Clauses cover spontaneous combustion, the
loss. Rubber Clauses cover sling and hook
damage, and the Timber Clauses provide
If the Assured has no idea how a loss
different levels of cover depending on
occurred (for example, a package has simply
whether the cargo is being carried on deck or
gone missing and nobody knows how or
under deck.
where it went missing), then the Assured will
not be able to show that the loss was caused However, the Bulk Oil Clauses do warrant
by one of the specified perils and will be some attention given the rather particular
unable to recover under the policy. Similarly, problems that can arise with this type of
if a package is delivered wet-damaged but cargo.
nobody knows how or why the package
became wet, the Assured will be unable to 1.5. Institute Bulk Oil Clauses
recover because it will not be able to be
shown that one of the specified perils caused
(1/2/83)
the loss. Unlike the A clauses, the insured Although designed for use with bulk crude
has to do some work to show what has oils and other liquid petroleum products,
happened, rather than just having to show these clauses are sometimes used to cover
the operation of a fortuity and nothing else. other types of oils, such as bulk palm oil. The
nature of the cargo means that the insured
transit has to be described in a different way.
The insurance therefore attaches …

“… as the subject-matter insured leaves

tanks for the purpose of loading at the place
 11

named herein for the commencement of the 1.2.4 negligence of Master, Officers or Crew
transit …” in pumping cargo ballast or fuel

and terminates … 1.3 contamination of the subject-matter

insured resulting from stress of weather.
“… as the subject-matter insured enters tanks
on discharge to place of storage or to storage Because of the restrictive nature of the perils
vessel at the destination named herein.” insured against, many Assureds in the oil
business prefer to insure under All Risks
This wording makes far more sense than a conditions.
general warehouse to warehouse type
wording and is particular to a liquid cargo. One of the known problems with bulk oil is
There is no coverage while the oil is in static the difficulty of obtaining accurate
storage prior to the commencement of measurements. A further problem is that
loading. There has to be a movement of the water in suspension in crude oil can ‘settle
oil out of the storage tank for the purposes of out’ during the voyage with the effect that
loading in order for the risk to attach. At there can appear to be an increase in water
destination, as soon as the oil enters a tank content (or Bottom Sediment and Water
for static storage on discharge, the risk will (BSW)) and reduction in quantity of oil
cease. A loss of cargo through leaking between loading and discharge. Most if not
connecting shorelines would be covered, but all oil cargoes will have some impurities in
a loss of cargo from a leaking storage tank them, and free water apparent even when
ashore would not. loading, and it is the increase in the apparent
water content combined with a reduction in
With regard to the perils insured against, the the apparent quantity of oil which is the
Bulk Oil Clauses quite closely follow the problem caused if water, held in suspension
restricted perils approach of the Institute so effectively invisible other than by testing,
Cargo Clauses (B) and (C), adapted to suit separates out of the oil during the voyage,
the nature of the cargo. What is covered is thus being able to be measured as a
the following: separate item.
1.1 loss of or contamination of the subject- These problems have given rise to the term
matter insured reasonably attributable to ‘paper losses’ where the buyer receives less
oil than has been paid for without there being
1.1.1 fire or explosion any apparent physical loss of cargo during
1.1.2 vessel or craft being stranded, the voyage. The Institute Bulk Oil Clauses
grounded, sunk or capsized seek to shield underwriters from such paper
losses by incorporating an Adjustment
1.1.3 collision or contact of vessel or craft Clause. This provides that claims for leakage
with any external object other than water and shortage recoverable under the
insurance are to be adjusted as follows:
1.1.4 discharge of cargo at a port or place
of distress Gross volume (or weight) of oil, including free
water and BSW, loaded from shore tanks
1.1.5 earthquake, volcanic eruption or
lightning less …

1.2 loss of or contamination of the subject- Gross volume (or weight) of oil, including free
matter insured caused by water and BSW, received into shore tanks

1.2.1 general average sacrifice equals … Net shortage of oil

1.2.2 jettison The practical effects of this clause are

demonstrated in the following example:
1.2.3 leakage from connecting pipelines in
loading, transhipment or discharge
 12

Example manufacturer’s warranty. Underwriters take

the view that their role is to cover physical
Gross quantity loss or damage only and that any commercial
measured at loading 650,497 bbls or economic losses are a matter for the
BSW (by analysis) 340 bbls Assured. The Institute Replacement Clause
Net quantity loaded 650,157 bbls was introduced to set out clearly what
underwriters are prepared to pay for when a
Gross quantity machine is damaged and can be repaired.
measured at discharge 645,100 bbls This clause will be additional to the main
Less: Free water drained clauses that cover the machine (usually ICC
from shore tanks 1,384 bbls (A), (B) or (C)). The most recent version of
643,716 bbls this clause reads as follows:
Less: BSW (by analysis) 324 bbls “In the event of loss of or damage to any part
Net quantity delivered 643,392 bbls or part(s) of an insured machine or other
manufactured item consisting of more than
(bbls = US Barrels at 15 degrees C (or 60 one part caused by a peril covered by this
degrees F) which is the common insurance, the sum recoverable shall not
measurement of volume in the oil trade.) exceed the cost of replacement or repair of
such part(s) plus labour for (re)fitting and
Any loss arising from an insured peril would carriage costs.”
be based on a comparison of the gross
volume shipped (650,497 bbls) and the gross The words ‘other manufactured item
quantity delivered (645,100 bbls), which consisting of more than one part’ were new
produces a net loss of 5,397 bbls. when this version of the clause was
introduced at the end of 2008. Thus, the
The inherent problem with this method of clause was extended to cover things such as
adjustment is that oil traders usually buy and furniture, which is a manufactured item
sell in net quantities, not gross quantities. consisting of parts assembled together, but
The receiver of the above cargo will most which is not a machine. The clause refers to
likely have paid for 650,157 bbls but received ‘loss or damage … caused by a peril covered
only 643,392 bbls, with the result that the loss by this insurance …’ so it is still necessary for
is the difference between the two, or 6,765 the claims adjuster to refer to the risks or
bbls. The Assured will therefore consider that perils covered by the main clauses to be
the above Adjustment Clause has failed to satisfied that the damage is covered by the
properly compensate the loss. policy. This clause will then guide the
adjuster on how to calculate the claim, i.e. it
This type of anomaly has resulted in the will be limited to:
frequent addition to policies of insurance on
bulk oil of ‘guaranteed outturn’ clauses. ■ The cost of replacing or repairing the
These provide for shortages to be calculated damaged part.
on a comparison of net loaded and net
delivered volumes or weights in the manner ■ The cost of labour for fitting the new part or
above that fully compensates the receiver for refitting the old part after repair.
their financial loss.
■ Costs of carriage, if a replacement part
has been shipped in or if the repaired part
1.6. Damage to machines /
had to be sent somewhere else for the repair
manufactured items to be carried out.
It sometimes happens that, when only part of
a machine is damaged, the Assured will want The clause goes on:
to ‘write off’ the whole machine and claim for “Duty incurred in the provision of replacement
a total loss, even though the machine could or repaired part(s) shall also be recoverable
be repaired. The desire to write off the provided that the full duty payable on the
machine is often a commercial one, insured machine or manufactured item is
especially if repairing it would invalidate the included in the amount insured.”
 13

When calculating the claim, the adjuster will There is also an endorsement which can be
need to check what was included in the added to the policy whenever either of the
original insured value. If it included the import above Replacement clauses is used:
duty payable on the machine or item then any
duty incurred on importing a replacement Institute Replacement Clause – Obsolete
part, or on reimporting the part after it has Parts Endorsement
been sent away for repair, can be included in
the claim; otherwise, it must be excluded. “In the event of a claim recoverable under
this policy necessitating the manufacture of
The clause finishes with a proviso that “… the any new part(s) for the repair of an insured
total liability of insurers shall in no event machine or other manufactured item, the sum
exceed the amount insured of the machine or recoverable shall not exceed the
manufactured item.” This places a limit on the manufacturer’s list price for the year of
amount underwriters will pay. It is perhaps manufacture of the lost or damaged part(s),
more relevant to second-hand machines uplifted for inflation. Inflation shall be
where the cost of repair or replacement parts determined by reference to the Retail Price
is more likely to be disproportionate to the Index, or other officially published data of the
second-hand value of the machine. country of manufacture of the insured
machine or manufactured item, up to a
There is a variant of this clause: maximum total uplift of 25%.

Institute Replacement Clause – Proportional If no such manufacturer’s list price is

Valuation provides that “… the sum available, the total liability shall in no event
recoverable shall not exceed the proportion exceed the amount insured of the machine or
of such cost of replacement or repair of such manufactured item.”
part(s) as the amount insured bears to the
new cost of the machine or manufactured If this endorsement is added to the policy, it
item …” but is otherwise the same as the will apply only when a new part has to be
standard Institute Replacement Clause. It specially manufactured to replace a damaged
would seem that this version of the clause is part. It will necessitate the claims adjuster
intended specifically for use when the having to establish the list price for that part
machine or item insured is second-hand, and for the year in which the machine or item was
the underwriter does not want to pay a manufactured, then uplifting (increasing it) it
disproportionate amount for the cost of a new to take into account inflation in the
replacement part. In this case, if the cost of a intervening period.
new replacement part was equivalent to, say,
10% of the cost of a new machine, then the
claim for the new part under this clause
would be limited to 10% of the insured value
of the second-hand machine in the policy.

Example

Second-hand machine with sum insured of

$500,000.

It arrives damaged due to an insured peril

and the estimate for a new part to be
manufactured is $100,000.

The cost of a new machine would be

$1,000,000. Cost of part is therefore 10% of
value of new machine.

Amount payable under this clause would be

10% of sum insured ($500,000) = $50,000
 14

1.7. Theft, pilferage and non-delivery With regard to non-delivery, it has to be an

entire package that is missing, not just part-
An Assured under Institute Cargo Clauses contents of a package. Some caution has to
(A) would have no need of additional cover be taken when dealing with a claim for non-
against these risks as they would fall within delivery of a package under this clause. The
the cover provided by an ‘All Risks’ purpose of this part of the clause is to cover
insurance. The position is different for the loss of any package which simply
Assureds under the restricted conditions of disappears ‘without trace’, the assumption
the (B) and (C) clauses. The Assured under being that it was probably stolen somewhere
these clauses would be able to recover for a in transit. There will be circumstances when a
lost or missing package only if it could be case is not delivered but it is known what
shown that its loss was reasonably happened to it.
attributable to (or caused by, as the case may
be) one of the named perils in those clauses. Example one
Theft is not one of the specifically-named
perils in the (B) or (C) clauses (which can A package is accidentally left on board the
come as something of a surprise to an vessel or mis-delivered to another port. This
Assured who is not familiar with insurance). is not non- delivery within the terms of this
clause. The package in these circumstances
For an additional premium, an Assured under is not lost to the Assured; the Assured (or the
those limited conditions can add to the cover shipowner) merely has the inconvenience of
the Institute Theft, Pilferage and Non-Delivery having to recover it and return it to the rightful
Clause, which provides: place of delivery – not covered.
“In consideration of an additional premium, it Example two
is hereby agreed that this insurance covers
loss of or damage to the subject-matter The carrying vessel has to put into a port of
insured caused by theft or pilferage, or by refuge to discharge and reload part cargo
non-delivery of an entire package, subject following movement of the stow in severe
always to the exclusions contained in this heavy weather which has caused the vessel
insurance.” to become unstable. A package of cargo
insured under (B) clauses with the Theft,
The word ‘theft’ is given a limited meaning in Pilferage and Non-delivery clause attached is
the laws in England relating to marine found to have become completely crushed by
insurance and would only cover theft on a the collapsed stow. It is useless and therefore
significant scale. The word ‘theft’ alone would disposed of at the port of refuge. So far as
not cover, for instance, a member of the the Assured of this cargo is concerned, this
ship’s crew secretly breaking open a case package will have been ‘non-delivered’ at
and stealing part of its contents – that is destination. However, the Assured will not be
considered to be ‘pilferage’ – i.e. the secret able to recover under this clause; the
taking of small quantities – and the loss circumstances which caused the package to
would not be covered if the policy covered be non-delivered are precisely known and
‘theft’ alone. To overcome this particular clearly the package has not been stolen – not
provision of English law, the drafters of this covered.
clause used the words ‘theft’ and ‘pilferage’ to
make it clear that the clause was intended to
provide cover for cargo that was stolen or
taken unlawfully, whatever the circumstances
in which it was stolen.
 15

1.8. Alternatives and adaptations to 1.9. Insurable interest and

Institute Cargo Clauses assignment
Institute Cargo Clauses provide a ready- It is appropriate to insert here a few
made and widely understood set of insurance comments about insurable interest. Under
conditions for cargo underwriters and English law, to recover under a policy of
Assureds in the London market and around marine insurance a person must have an
the world. Their use, however, is not insurable interest in the marine adventure or
compulsory – even in the London market – the property in the adventure.
and other forms of cargo insurance
conditions will be encountered from time to Under the Marine Insurance Act 1906, a
time. Most established insurance markets person has an insurable interest … “where he
around the world do have their own forms of stands in any legal or equitable relation to the
cargo conditions. The American Institute of adventure or to any insurable property at risk
Marine Underwriters (AIMU) issues its own therein, in consequence of which he may
versions of clauses for all the major marine benefit by the safety or due arrival of
risks and these are in common usage. To insurable property, or may be prejudiced by
examine all variations of cargo clauses would its loss or by damage thereto, or by the
be beyond the scope of this manual. They detention thereof, or may incur liability in
are unlikely to differ significantly from Institute respect thereof.”
clauses but may have small adaptations
peculiar to the market that issues them. The Assured, or the person to whom the
Should a claims adjuster encounter an claim is ultimately payable, does not need to
unfamiliar set of clauses, it is likely that a have an insurable interest when the
copy of those clauses could be found by a insurance is taken out, but does need to have
simple internet search. an insurable interest at the time of the loss
and that is clearly stated in all Institute Cargo
Check www.fortunes-de- Clauses.
mer.com for many
This is relevant to a cargo Assured who
international clauses – not just
purchases on terms such as FOB (Free On
for cargo, but for hull and
Board) and arranges their own insurance.
machinery, war, liabilities, loss
Under FOB terms, the purchaser has no
of earnings, etc.
interest in or ownership of the cargo until it is
It is also common practice for brokers to add on board the ship. Up to that point, ownership
special clauses to a policy for particular types (and therefore any risk of loss) is with the
of goods or Assureds, sometimes to extend seller. Thus, although the buyer’s insurance
the cover and sometimes to amend or clarify is likely to have a standard ‘warehouse to
the terms of cover. There are no ‘standard’ warehouse’ clause (purporting to cover the
broker clauses, although each major broking goods from the seller’s warehouse), the
house tends to have established wordings for buyer would not be able to claim on that
most situations where additional clauses are policy for a loss occurring prior to loading to
needed. the vessel because there would have been
no insurable interest at that point. There will
A policy might begin by saying that the terms be other terms of sale, for example FAS
of insurance are, for example, Institute Cargo (Free Alongside Ship), where the buyer does
Clauses (A) 1/1/09. However, the claims not acquire an interest in the goods until
adjuster needs to check the whole policy in some point after the transit has started. The
case there are additional clauses which claims adjuster therefore needs to examine
extend, diminish or otherwise vary the cover. the invoice or other terms of sale and be
Certain typically used additions are aware of the standard Incoterms issued by
incorporated on the certificates, so both sides the International Chamber of Commerce.
of that document should be carefully studied.
Insurable interest should not be confused
with assignment of interest. Any person who
has a right to recover under an insurance
 16

policy may assign that right to somebody consignees would not be able to sell the
else. It is common for a shipper of goods to cargo at normal price to the furniture retailers.
arrange the insurance then sell the goods to The cost of repackaging would therefore be
a buyer under CIF (cost, insurance and recoverable.
freight) terms. The shipper (being the original
Assured) will assign the interest in the Example two
insurance to the buyer by signing an
endorsement on the back of the insurance The insured cargo is a consignment of books
certificate. This has the effect of passing wrapped in plastic and packed 100 books to
rights under the insurance from the shipper to a cardboard box. It is consigned to a book
the buyer. There are some commodities seller who will display the books individually
which are customarily ‘sold on’ during transit, on the shelves in their bookshop. During
sometimes more than once. With each on- transit, the cardboard box becomes stained
sale, interest in any insurance would by the leakage of an adjacent cargo but is still
simultaneously be assigned to the new buyer. fit to contain the books without causing them
any damage. In these circumstances, the
1.10. Institute Cargo Clauses (Air) cardboard box is clearly not a part of the
thing insured. It is merely something that is
Although not a marine risk, mention is made used to transport the subject-matter insured
here of the Air Clauses as cargo these days (the books) and will probably be thrown away
is regularly transported by air freight. The once the cargo has been delivered at
Institute Cargo Clauses (Air) provide ‘All destination. The Assured would not be able
Risks’ cover and are closely modelled on the to claim for damage merely to the packaging.
Institute Cargo Clauses (A). Coverage
remains on a ‘warehouse to warehouse’ Example three
basis, the only difference being that the main
part of the voyage is on board an aircraft Circumstances as in two, but this time the
rather than an ocean-going vessel. In all key box is likely to break apart if used for the
respects, the two sets of clauses are remainder of the transit, thereby risking
identical. The clauses are not reproduced damage to the books themselves. The
here. Any claims adjuster familiar with consignee instructs the agent at the
Institute Cargo Clauses (A) should have no discharge port to repackage the books into a
difficulty in adjusting a claim under Institute new box. In these circumstances, the cost of
Cargo Clauses (Air). repackaging would be recoverable under the
policy. This is not because the packaging in
1.11. Packaging this example is a part of the subject-matter
insured; it is because it has been replaced for
It sometimes happens that cargo itself is the sole purpose of preventing the books
sound but the packaging it is contained within becoming damaged in subsequent transit.
suffers damage by an insured peril. Can the
Assured recover for the cost of repackaging? It is therefore recoverable as the cost of
This is likely to depend on the circumstances, “averting or minimising a loss that would be
as the following examples will show. The key recoverable …” under the policy. Such costs
question is often whether the end customer are recoverable under the Duty of Assured
will be buying the goods in the packing or Clause (see chapter 6).
whether the packing will be removed before
final sale: Thus, whenever the claims adjuster is faced
with a claim for the costs of repackaging,
Example one both the nature of the subject-matter insured
and the circumstances in which the costs
The insured cargo is flat-pack furniture which were incurred will need to be carefully
the consignees will sell to retail furniture considered before deciding whether or not to
stores at destination, which will sell the cargo allow them as part of the claim under the
to their customers still in its packaging. In policy.
these circumstances, the packaging is clearly
a part of the thing that is insured, and the
Chapter 2
Cargo Clauses Exclusions
Explained

Classification: Confidential
 18

Contents
2.1. Exclusions 19
2.2. Clause 4 – General exclusions 19
2.3. Clause 5 – Unseaworthiness and unfitness exclusion 21
2.4. Clause 6 – War exclusion 23
2.5. Clause 7 – Strikes exclusion 23
2.6. Concurrent causes 24
2.7. When an exclusion is deleted 25
 19

2.1. Exclusions subject to a natural loss in weight during

transit. Such ordinary leakage or loss is
Chapter 1 dealt with the positive cover expected to happen and is therefore not
provided by standard Institute Cargo accidental or fortuitous. Where such a cargo
Clauses. This chapter concentrates on the is delivered with a higher than expected loss,
exclusions in Clauses 4, 5, 6 and 7 of the (A), difficulties can occur in deciding whether this
(B) and (C) clauses, ie the types of loss or is still an ordinary or normal loss or whether
damage which underwriters expressly do not something fortuitous has happened to make
cover, and also indicates for the war and the loss greater than anticipated. To
strikes exclusions how some cover can be overcome such problems, an insurance on a
bought back under specialist wordings. cargo that is susceptible to normal voyage
Basic Concepts loss will usually contain an agreement to pay
losses in excess of a certain percentage, the
Exclusions always take preference over the compromise being that any loss below that
insured perils. Thus, if the loss is caused by percentage will be deemed normal and any
an insured peril but one of the exclusions has loss above it deemed fortuitous.
also operated to cause the loss, then
underwriters can rely on the exclusion and Consider all the types of cargo
avoid paying the claim. seen by your Agency and what
their natural behaviour might
2.2. Clause 4 – General exclusions be, whether it is to lose
moisture or to evaporate – talk
The clause begins “In no case shall this to colleagues about what they
insurance cover …” and then proceeds to list have seen as well.
things which are not covered by the
insurance. These are generally things that it Ordinary wear and tear is the deterioration
is within the control of the Assured to avoid or that something will suffer through use over a
which are largely inevitable or non-fortuitous. period of time. Parts on a machine, for
example, will gradually wear out over time
4.1 loss damage or expense attributable and may even fail, causing the machine to
to wilful misconduct of the Assured ‘Wilful break down. If the subject-matter Assured
misconduct’ means an action taken by the was a second-hand machine and, on arrival
Assured either deliberately, knowing it to be at destination, the machine did not work
wrong, or recklessly, without caring whether it because a part had failed simply because it
is right or wrong. Any loss, damage or was old and worn, this would be ordinary
expense which can be attributable to such an wear and tear and the cost of replacing the
action by the Assured is excluded from the worn part would be excluded by this clause.
cover. For example, if the Assured shipped
goods knowing they did not meet quarantine 4.3 loss damage or expense caused by
regulations in the country of destination, with insufficiency or unsuitability of packing or
the result that customs authorities seized preparation of the subject-matter insured to
withstand the ordinary incidents of the
and destroyed the goods, that would be wilful insured transit where such packing or
misconduct of the Assured and this exclusion preparation is carried out by the Assured or
would prevent them from recovering under their employees or prior to the attachment of
the policy. this insurance …

4.2 ordinary leakage, ordinary loss in Insurers expect cargo to be packed or

weight or volume, or ordinary wear and tear prepared in a manner that makes it capable
of the subject-matter insured of withstanding the ordinary or expected
rigours of the voyage to be undertaken. This
Certain types of cargo have a natural is a relative concept as packing that is
tendency to leakage or loss in weight or appropriate for one cargo will be excessive
volume during the course of a voyage. For for another, or inadequate for yet another.
example, white rice bran is shipped with a
moisture content of around 15% and will be
 20

If the packaging is not up to standard, is something that is expected to happen,

underwriters will not respond for any loss, although it can be controlled.
damage or expense that results. The clause
goes on to make it clear that “… ‘packing’ Underwriters will expect to see that the
shall be deemed to include stowage in a carriage of such cargoes manages their
container …” and also that “‘employees’ shall natural behaviour in the appropriate way
not include independent contractors”. whether by temperature control, or by
ensuring that the iron cargo is not exposed to
Claims arising from the poor stowage of a the atmosphere.
container by a freight forwarder at an
intermediate point of the transit would thus 4.5 loss damage or expense caused by
not be excluded by this clause – the freight delay, even though the delay be caused by a
forwarder’s negligence would be a fortuitous risk insured against (except expenses
circumstance, so far as the Assured is payable under Clause 2 above) Marine
concerned. underwriters traditionally do not cover loss or
damage that arises from delay. That is the
The wording of this clause is quite different case even when the delay itself is caused by
from its equivalent in the 1/1/82 clauses, a peril insured against. By way of example: a
although the rewording was simply to add vessel is badly damaged by heavy weather
clarity and did not change the meaning or (an insured peril under an ‘All Risks’ policy)
purpose of the exclusion in any way. and has to put into a port of refuge for
repairs. A perishable cargo on board decays
To summarise, if loss or damage is caused as a result of the delay. The proximate cause
by insufficiency of packaging/poor stowage of of loss to the perishable cargo is the delay,
the container: not the heavy weather, and the Assured will
not be able to recover from their underwriters.
■ This exclusion will apply if the
packing/stowage was carried out by the [The reference to Clause 2 is a reference to
Assured or their employees [because it was general average (dealt with in chapter 9).
within the Assured’s control to prevent this]. When involved in a case of general average,
cargo owners will pay a contribution towards
■ This exclusion will apply if the the general average expenses incurred by
packing/stowage was carried out by anyone the shipowners. This contribution is
before the insurance attached [because the recoverable under a standard policy on
thing that caused the loss existed before the cargo. The general average will often include
insurance even started]. expenses incurred at a port of refuge which
■ This exclusion will NOT apply if the may be deemed to arise from delay. The
extra words in this Clause 4.5 make it clear
packing/ stowage was carried out after the
insurance attached by a freight forwarder or that the delay exclusion is not intended to be
other independent contractor [because the applied to any part of a general average
Assured personally was innocent of any contribution recoverable under Clause 2.]
wrongdoing]. 4.6 loss damage or expense caused by
4.4 loss damage or expense caused by insolvency or financial default of the owners
inherent vice or nature of the subject-matter managers charterers or operators of the
vessel where, at the time of loading of the
insured.
subject-matter insured on board the vessel,
Inherent vice means a natural condition or the Assured are aware, or in the ordinary
characteristic within the cargo itself which can course of business should be aware, that
bring about its deterioration without any such insolvency or financial default could
external accident or casualty whatsoever. It is prevent the normal prosecution of the
the natural behaviour of the cargo, given the voyage.
expected conditions in which it will be carried.
This exclusion shall not apply where the
For example, fresh fruit will naturally decay
over a period of time and iron-based metals contract of insurance has been assigned to
will oxidise and rust. This is not fortuitous – it the party claiming hereunder who has bought
 21

or agreed to buy the subject-matter insured in nuclear fission’, etc. The revised exclusion in
good faith under a binding contract. the 1/1/09 clauses is thus far more wide-
reaching.
When introduced into the Institute Cargo
Clauses in 1982, this exclusion read: The above exclusions are all in the (A), (B)
and (C) clauses. The following exclusion is in
“loss damage or expense arising from the (B) and (C) clauses only (and appears in
insolvency or financial default of the owners those clauses as 4.7, with the above nuclear
managers charterers or operators of the exclusion renumbered as 4.8):
vessel”
4.7 [in (B) and (C) clauses only] –
In that form, it caused a certain amount of deliberate damage to or deliberate
resentment. Its intention was to exclude the destruction of the subject-matter insured or
costs of recovering and forwarding cargo to any part thereof by the wrongful act of any
destination where the voyage is abandoned person or persons
at an intermediate port solely on account of
the shipowner’s financial difficulties. It was This is a wide-ranging exclusion that prevents
felt to be harsh as cargo interests have no recovery of any type of deliberate or
control at all over a shipowner’s financial malicious damage to the insured cargo.
situation. For this reason, the exclusion was
softened considerably in the separate trade Exclusions always take
clauses negotiated by the various trade preference over the perils
associations. However, it still exists in the covered by the policy. Thus, if
1/1/82 version of the Institute Cargo Clauses somebody intentionally sets fire
(A), (B) and (C) and will operate to exclude to the insured cargo, although
claims by a cargo Assured where the voyage the resulting damage would be
ends prematurely on account of the vessel a loss by fire (one of the named
owner’s/operator’s financial problems. perils in the (B) and (C)
clauses), the claim would be
Now that the additional wording has been defeated by this exclusion.
added in the 1/1/09 version of the clauses, an
innocent Assured, or an innocent buyer to For an additional premium, Assureds under
whom the insurance has been assigned, will the (B) and (C) clauses can extend the cover
enjoy greater protection against the operation to include the Institute Malicious Damage
of this exclusion than an Assured under the Clause, which has the effect of deleting this
1/1/82 clauses. exclusion and expressly providing cover
against “… loss of or damage to the subject-
4.7 loss damage or expense directly or matter insured caused by malicious acts,
indirectly caused by or arising from the use of vandalism or sabotage, subject always to the
any weapon [of war] or device employing other exclusions contained in this insurance”.
atomic or nuclear fission and/or fusion or
other like reaction or radioactive force or 2.3. Clause 5 – Unseaworthiness and
matter. unfitness exclusion
The words “directly or indirectly caused by or” All marine insurances on cargo are voyage
and “or device” have been introduced into the policies, i.e. they cover the cargo for a
1/1/09 clauses and the words ‘of war’ (which particular voyage from one place to another,
were in the 1/1/82 clauses) have been including a period at sea. Even a cargo
removed. In the 1/1/82 clauses, this exclusion insurance written on an open cover which
is limited only to atomic/ nuclear weaponry exists for a period of time is deemed a
and would not rule out a claim where damage voyage policy as it is the individual
or contamination is caused by a leak from, or declarations to that open cover that are the
other accident to, a nuclear power station. actual contracts of insurance for the cargo
The revised exclusion in the 1/1/09 clauses being shipped. The open cover is a facility –
makes a significant difference as such a a contract for insurance rather than a contract
claim would now be ruled out as being of insurance, and of course it might be that
caused by a ‘device employing atomic or
 22

no cargoes are shipped or insured under that have been liable for damage that occurred to
contract. the cargo, say, while on a lorry between the
port of discharge and the consignee’s inland
Under the Marine Insurance Act (1906), the warehouse.
provisions of which apply to Institute Cargo
Clauses because they are subject to English Under 1/1/09 clauses, that will not be the
law (unless that wording is deleted), there are case. This may be more easily understood
implied warranties in a voyage policy that a) once chapter 4 on warranties has been
the ship is seaworthy at the commencement studied.
of the voyage and b) the ship is reasonably fit
to carry the goods to destination. It needs to be understood that the removal of
those words regarding the Assured’s privity
Warranties in English law are construed very (or knowledge) of the unseaworthiness does
strictly – if the warranty is breached, the not mean that underwriters will now pay
underwriter is entitled to avoid (MIA 1906) or claims that arise from unseaworthiness
suspend (Insurance Act 2015) the contract where the Assured knew the vessel was
from that moment on – (see chapter 4). Yet, unseaworthy or unfit. They will not, and the
the condition of the ship at the start of the first part of Clause 5 makes that clear:
voyage is something over which a cargo
Assured generally has no control. The effect 5.1 In no case shall this insurance cover
of this exclusion in the Institute Cargo loss damage or expense arising from
Clauses is not to enforce the implied
warranties of seaworthiness and fitness of 5.1.1 unseaworthiness of vessel or craft or
the ship – it is to soften their effects on an unfitness of vessel or craft for the safe
innocent cargo Assured. This is easier to carriage of the subject-matter insured, where
understand by looking at the last part of the the Assured are privy to such
exclusion first: unseaworthiness or unfitness, at the time the
subject-matter insured is loaded therein.
5.3 The Insurers waive any breach of the
implied warranties of seaworthiness of the 5.1.2 unfitness of container or conveyance
ship and fitness of the ship to carry the for the safe carriage of the subject-matter
subject-matter insured to destination [unless insured, where loading therein or thereon is
the Assured or their servants are privy to carried out prior to attachment of this
such unseaworthiness or unfitness]. insurance or by the Assured or their
employees and they are privy to such
Under the 1/1/82 clauses, which contain the unfitness at the time of loading.
bracketed words shown in dark blue,
underwriters will ignore any breach of these The exclusion will not apply to an innocent
warranties unless the Assured knew the ship Assured who had no knowledge of the
was unseaworthy or unfit. These bracketed unseaworthiness or unfitness. Note that the
words have been removed from the 1/1/09 ‘unfitness’ part of the exclusion applies to all
clauses, the effect being that underwriters forms of carriage and not just the ship.
under the 1/1/09 clauses will waive any With regard to unseaworthiness/unfitness of
breach of the said warranty even where the the vessel or craft, a new concession has
Assured did know. This is important: when a been introduced into the 1/1/09 clauses
warranty is breached, underwriters are whereby the exclusion in 5.1.1 shall not apply
entitled to avoid the policy from that moment “...where the contract of insurance has been
on and are entitled to reject any claims that assigned to the party claiming hereunder who
arise following the breach, even if the loss or has bought or agreed to buy the subject-
damage that is the subject of that claim had matter insured in good faith under a binding
nothing whatsoever to do with the breach of contract”. Thus if the original Assured was
warranty itself. Thus, under 1/1/82 clauses, if privy to unseaworthiness or unfitness of the
the Assured knowingly allowed their goods to vessel at the time of loading but a consignee
be loaded to an unseaworthy ship, to whom the insurance was assigned was
underwriters would have been entitled to not, then underwriters will not apply the
immediately avoid the policy and would not exclusion in.
 23

5.1.1. This brings considerable comfort to a 1.1 war civil war revolution rebellion
claimant who has purchased under a CIF insurrection, or civil strife arising therefrom, or
contract and who has no control whatsoever any hostile act by or against a belligerent
over the choice of vessel or craft used for power
carriage.
1.2 capture seizure arrest restraint or
2.4. Clause 6 – War exclusion detainment, arising from risks covered under
1.1 above, and the consequences thereof or
This exclusion is largely self-explanatory and any attempt thereat
reads:
1.3 derelict mines torpedoes bombs or
6. In no case shall this insurance cover other derelict weapons of war.
loss damage or expense caused by
Note that in the War Clauses
6.1 war civil war revolution rebellion there needs to be a link back to
insurrection, or civil strife arising therefrom, or the perils under 1.1 for a claim
any hostile act by or against a belligerent to be made under 1.2 – if you
power look back at the exclusion there
is no such link, thus making the
6.2 capture seizure arrest restraint or
War Clauses narrower than the
detainment (piracy excepted), and the
exclusion.
consequences thereof or any attempt thereat

6.3 derelict mines torpedoes, bombs or There is a further exclusion for

other derelict weapons of war. loss or frustration of the voyage
or adventure as well.
Clause 6.3 makes it clear that the exclusion
applies not only to war and war-like perils but 2.5. Clause 7 – Strikes exclusion
also to any mines, weapons, etc that might 7 In no case shall this insurance cover
still be lying around long after the war has
loss damage or expense
ended.
7.1 caused by strikers, locked-out
The words ‘piracy excepted’ are extremely workmen, or persons taking part in labour
important, particularly in the light of serious disturbances, riots or civil commotions
piracy problems that persist in various parts
of the world. By inserting these words, 7.2 resulting from strikes, lock- outs,
underwriters make it clear that piracy is not to labour disturbances, riots or civil commotions
be excluded by this clause, i.e. that piracy is
to be treated as a marine peril, not a war 7.3 caused by any act of terrorism being
peril. However, the words ‘piracy excepted’ an act of any person acting on behalf of, or in
appear in this exclusion only in the (A) connection with, any organisation which
clauses; they are not in the (B) or (C) carries out activities directed towards the
clauses. The effect is that an Assured under overthrowing or influencing, by force or
the (B) and (C) clauses has no cover violence, of any government whether or not
whatsoever against piracy, either in the legally constituted
marine policy or the War Risks Clauses, if
added. 7.4 caused by any person acting from a
political, ideological or religious motive.
The War Clauses, however, do not offer
cover on quite such wide terms as the It is not only damage caused by the persons
exclusion removes. taking part in strikes, lock-outs, etc that is
excluded. Any loss, damage or expense
Institute War Clauses 1/1/2009 resulting from a strike, lock- out, etc is also
excluded. Underwriters in London do not
This insurance covers, except as excluded by normally cover war risks on land. Although
the provisions of Clauses 3 and 4 below, loss possibly engaged in war-like activities,
of or damage to the subject matter insured terrorists and those acting from a political
caused by
 24

motive are more likely to cause problems on strike, etc, but it is not caused by the persons
land than at sea, so cover for those risks is taking part in that activity, the Assured will
included in the Strikes Clauses (which do thereby be unable to claim under either the
provide cover on land) rather than the War ICC or the Strikes Clauses.
Clauses. For consistency, the exclusion of
these perils comes within Clause 7 (Strikes) Damage caused by a terrorist or person
rather than Clause 6 (War). acting from a political (etc) motive would
seem, at first sight, to be more suited to the
The above Clauses 7.3 and 7.4 did not war risks cover. The reason this peril is in the
appear in the 1/1/82 clauses. Those clauses strikes risks cover is that it is a type of loss
merely said: most likely to occur on land – London marine
insurers provide cover against strikes risk on
7.3 caused by any terrorist or any person land but, as above, do not normally cover war
acting from a political motive. risks on land. Unlike the previous 1/1/82
version of these clauses, the 1/1/09 version
The wording has been changed to coincide now contains a definition of ‘terrorism’ (in 1.2)
with the wording used in the Institute Strikes and separates it from ‘motive’ (in 1.3) which
Clauses (Cargo) 1/1/09 but does not appear is now expressed as ‘political, ideological or
to have altered the meaning or purpose of the religious motive’ rather than just ‘political
exclusion. motive’, as it was previously expressed.
Institute Strikes Clauses (Cargo) 1/1/09 These changes appear to be for clarity rather
than to extend or diminish the cover.
The clauses cover loss of or damage to the
subject- matter insured caused by: 2.6. Concurrent causes
1.1 strikers, locked-out workmen or It sometimes happens that there can be more
persons taking part in labour disturbances, than one cause of a loss, ie two separate
riots or civil commotions perils acting together, or in sequence, to
bring about loss or damage. It may be that, in
1.2 any act of terrorism being an act of the circumstance of the particular case, one
any person acting on behalf of, or in cause is clearly the one that brought about
connection with, any organisation which the loss and the other is merely incidental.
carries out activities directed towards the The incidental cause can then be ignored, the
overthrowing or influencing, by force or other cause being the effective or dominant
violence, of any government whether or not cause. In other cases, it might not be so clear
legally constituted and both causes may be deemed to have
played an equal or nearly equal part. This is
1.3 any person acting from a political, best demonstrated by way of an example.
ideological or religious motive.
Example
So far as concerns Clause 1.1, it is important
to understand that it is not enough for there A cargo is discharged from the vessel and
simply to have been a strike (or labour put into store in the port area where it is to be
disturbance, riot or civil commotion) to trigger loaded to a lorry the next day for onward
a claim. It is only loss or damage that is carriage to final inland destination. As a result
caused by persons taking part in those of a strike breaking out at the port, the cargo
activities that is covered. Thus, the cover becomes trapped in storage there for several
provided by these Strikes Clauses does not weeks. At the end of the second week,
exactly mirror the risks that are excluded torrential rain causes floodwater to enter the
under the Strikes exclusion in Clause 7 of the warehouse and damage the goods. Two
ICC. The exclusion in ICC of loss, damage or things have happened to bring about this loss
expense “resulting from strikes, lock-outs, – 1) it is a loss that would not have happened
labour disturbances, riots or civil but for the strike (the cargo would have been
commotions” is not reinstated in the Strikes removed from the warehouse before the
Clauses. Therefore, if cargo sustains loss or flooding occurred), and 2) it is a loss caused
damage by reason of there having been a by floodwater entering the warehouse.
 25

The questions the claims adjuster must would otherwise be recoverable under the
consider are these: policy. The loss or damage that is the subject
of the claim must still be caused by a covered
a. Was the damage caused by (or did it result peril. Consider the following examples.
from)
Example one
the strike?
The subject-matter insured is a perishable
b. Was the damage caused by floodwater cargo insured under ICC (B). Underwriters
entering the warehouse? have agreed to delete the exclusion of ‘loss,
damage or expense caused by delay…’.
The answer to a. has to be ‘No’. Although the
cargo would not have been in the warehouse The vessel carrying the cargo suffers an
at the time of the flood had the strike not engine breakdown in the middle of the ocean.
happened, there was no inevitability It takes several weeks for a salvage tug to
whatsoever that the happening of the strike reach the stricken vessel, take her in tow and
would lead to damage to the cargo. The get her to a place of safety. During this time,
strike is merely a remote cause which did not, the quality of the cargo deteriorates. This is a
in itself, cause damage to the cargo. loss by delay, but underwriters have deleted
that exclusion. Can the Assured recover
The answer to b. has to be ‘Yes’. It was the
under the policy? The answer is ‘No’. The
floodwater entering the warehouse that
loss still has to be caused by one of the perils
caused the damage to the cargo. That was
named in the policy. The Assured cannot
the direct (or proximate or effective) cause of
recover under the (B) clauses for a loss
the loss.
reasonably attributable to the breakdown of
What if there are two separate causes of the the vessel’s engine because that is not one of
loss and both have had an equal or nearly the specifically-named perils in the policy.
equal effect in causing the loss? Certain rules Neither can the Assured recover it as a loss
have evolved as a result of legal decisions: caused by delay because simply deleting the
exclusion of delay does not have the effect of
If one cause is a peril insured against and the converting delay into a named peril. Now
other is not mentioned at all (either as a peril consider the next example.
or as an exclusion) then the Assured will
recover everything under the policy. Example two

However: The circumstances are exactly the same as

the above, but this time the loss of the
■ If one cause is an insured peril and the vessel’s motive power is caused by the
other is expressly excluded, then vessel’s propeller striking a submerged rock
underwriters can take advantage of the and suffering severe damage that prevents
exclusion and avoid paying the claim as a the vessel from proceeding. Now the cargo
whole. Assured can cite loss or damage “reasonably
attributable to … (1.1.4) contact of the vessel
2.7. When an exclusion is deleted … with … any external object”, etc as the
named peril in the policy under which to
It sometimes happens that an underwriter recover. Although the deterioration to the
agrees to delete an exclusion (remove it) cargo is a loss by delay, because the delay
from the policy. It is often mistakenly thought exclusion has been deleted from the policy
that this has the effect of providing positive the underwriters can no longer rely on it as a
cover against the thing that would have been defence and the Assured can recover under
excluded had the exclusion not been deleted. the policy.
This is not the case. The effect of deleting an
exclusion is that underwriters can no longer
rely on that exclusion to reject a claim that
Chapter 3
The Insured Transit

Classification: Confidential
 27

Contents
3.1. The Transit Clause 28
3.2. Where the risk starts 28
3.3. While on risk 28
3.4. Where the risk ends 29
3.5. Voluntary change of destination 30
3.6. Enforced change of destination 30
3.7. When the adventure terminates prematurely 31
3.8. When the Assured changes the destination 31
3.9. When the carrier changes the destination 32
3.10. Summary 32
 28

3.1. The Transit Clause For the insurance to attach under the 1/1/82
clauses, the goods must leave the
All cargo insurances will have clauses that warehouse. This denotes that the goods must
set out the points at which the insured have physically started moving on the
adventure will attach, the points at which the adventure for the insurance to start. Thus, if
insured adventure will cease and the goods are loaded to a lorry at the seller’s
circumstances under which the cover might warehouse and are then destroyed by fire
terminate prematurely. When establishing before the lorry has started on the journey to
whether loss or damage is covered by the the port, the Assured would not be able to
policy, the adjuster or claims settler must not recover under the policy.
only be satisfied that it was caused by a peril
insured against, but there must also be The position is a bit different under the 1/1/09
satisfaction that it occurred at some point on
the insured transit and that the person clauses, as follows:
making the claim had an insurable interest at
the time of the loss. 8.1 Subject to Clause 11 below, this
insurance attaches from the time the subject-
Most cargo insurances are on a ‘warehouse matter insured is first moved in the
to warehouse’ basis, i.e. the insured transit is warehouse or at the place of storage (at the
from seller’s warehouse to buyer’s place named in the contract of insurance) for
warehouse. There can be variants to this the purpose of the immediate loading into or
depending on the nature of the cargo (e.g. onto the carrying vehicle or other conveyance
bulk liquids are normally insured from one for the commencement of transit …
tank to another tank).
The insured transit therefore starts earlier
Always remember that under the 1/1/09 clauses and would cover, for
insurable interest is relevant to example, damage to a case that is dropped
transit. Although the insurance while being taken off the shelf at the
wording might say warehouse warehouse for loading to a lorry. (Clause 11
to warehouse, an insured relates to insurable interest and the words
transit can only occur when merely emphasise the need for the claimant
someone has an insurable to have an insurable interest for the insured
interest. For example, in an transit to commence at that point.)
FOB sale contract, the buyer
will only obtain the insurance 3.3. While on risk
interest at the point that the Clause 8.1. goes on “… continues during the
goods are on board the ship ordinary course of transit …” These are very
(INCOTERMS 2010). important words. When an underwriter
This chapter deals with the Transit Clause in agrees to insure a cargo from point A in one
the Institute Cargo Clauses (A), (B) and (C). country to point B in another country, the
It is Clause 8 and is identical in each set of Assured is expected to do whatever is
clauses. The chapter also deals with the necessary to make sure that the cargo travels
circumstances in which cover might cease by a reasonably direct route and without any
prematurely – (Clause 9 of the (A), (B) and unreasonable or unnecessary delay. For as
(C) clauses). long as the goods are travelling by a
reasonably direct route, or by a route which
3.2. Where the risk starts the underwriter might reasonably expect the
goods to take, then they are deemed to be ‘in
The point at which the risk commences is set the ordinary course of transit’. As soon as the
out in Clause 8 of the Institute Cargo Clauses Assured causes the goods to deviate from
(A), (B) and (C). In the 1/1/82 clauses, it read: what is a reasonable course, trouble could
arise, as the following example (a true case)
8.1 This insurance attaches from the time demonstrates.
the goods leave the warehouse or place of
storage at the place named herein for the
commencement of the transit, …
 29

Example any other warehouse or place of storage,

whether prior to or at the destination named
Goods were insured from a warehouse in in the contract of insurance, which the
Italy. En route to the port of loading, the lorry Assured or their employees elect to use
driver decided to take a detour through the either for storage other than in the ordinary
centre of Rome to do some sightseeing. course of transit or for allocation or
During this detour, the lorry overturned and distribution...
the goods were damaged. The Assured was
unable to recover from the underwriters as (In the 1/1/82 clauses, the equivalent clause
the detour to Rome was a ‘joy ride’ that had said “… on delivery to any other warehouse
no connection to the carriage of goods to …”, etc)
destination and was therefore not within the
ordinary course of transit. Sometimes goods are consigned to shippers’
agents in country of destination, for the agent
Think about the cargoes that to sell to final buyers. In such circumstances,
you see. What is their normal the shipper’s agent may initially receive
journey and what would you goods into a storage facility and then allocate
consider to be the ordinary to final buyers from there. The clause makes
course of their transit? Consider it clear that the insurance will cease as soon
feeder services for container as unloading of the goods is completed at the
shipments – how long will those warehouse from which they will be allocated.
cargoes wait at the Furthermore, if the Assured puts the goods
transhipment port? How about into any place of storage which is not
cargo travelling by rail – is there contemplated by underwriters as part of the
a time when it is waiting in ordinary course of transit, the insurance will
sidings to join another train? thereupon terminate. An example of this
might be where the Assured leaves the
3.4. Where the risk ends goods sitting at the port of discharge solely to
defer having to pay import duty until a more
8.1 …and terminates either convenient time. By doing so, the Assured
may have inadvertently caused their
8.1.1 on completion of unloading from the
insurance cover to terminate prematurely.
carrying vehicle or other conveyance in or at
the final warehouse or place of storage at the An additional point of termination (not in the
destination named in the contract of 1/1/82 clauses) is referred to in the 1/1/09
insurance clauses:
This is the first of several circumstances in 8.1.3 when the Assured or their employees
which the insured transit will terminate, and is elect to use any carrying vehicle or other
the most common one. Under the 1/1/82 conveyance or any container for storage
clauses, the point of termination was “on other than in the ordinary course of transit...
delivery to the consignees’ or other final
warehouse”. Thus, once the lorry or container Thus, it is not just storage for the Assured’s
carrying the goods had arrived at the own convenience at an intermediate
Assured’s final warehouse, the insured transit warehouse or place of storage that will cause
ceased. If the goods were damaged during the insurance to terminate prematurely. The
unloading of the lorry or unstuffing of the same will also apply if the Assured, for their
container, the Assured would not be able to own convenience, chooses to leave the
recover under the marine policy as the risk goods in a container or on a storage vehicle.
would already have terminated. Under the This would also be the case where that
1/1/09 version of this clause, the transit container or storage vehicle had actually
period is extended and ceases only on arrived at the warehouse at final destination
completion of unloading from the carrying but the Assured decided to unreasonably
vehicle, etc at final destination. delay unloading it.
8.1.2 on completion of unloading from the
carrying vehicle or other conveyance in or at
 30

Finally, there is a ‘cut-off’ point where the first moved for the purpose of the
insurance will automatically terminate prior to commencement of transit to such other
arrival at the insured destination: destination. [shall not extend beyond the
commencement of transit to such other
8.1.4 on the expiry of 60 days after destination.]
completion of discharge overside of the
subject-matter insured from the oversea The intention is clear. As soon as the
vessel at the final port of discharge Assured changes the course of the insured
transit from that originally agreed by the
This is an automatic cut-off point and will underwriters, the risk will cease. Slightly
apply even if the goods have not reached different wording is used in the 1/1/09
their final inland destination by the 60th day clauses, but the effect is the same.
after discharge at the port of arrival (unless
the Assured has negotiated an extension of Example – the goods are
this period with the underwriters). insured to Chicago and will be
discharged at New York for
… whichever shall first occur. onwards transit. On arrival at
New York the consignee
The foregoing incidences of termination of
decides that the goods are
risk in the Transit Clause are not a menu of
needed in Philadelphia and so
options from which the Assured can simply
orders them to be taken there.
choose – the risk will end immediately if any
As soon as the goods start to
one of the above circumstances happens.
move in New York for the
Think about the cargo journey to Philadelphia,
consignee’s business. Some of insurers are off risk.
these activities might be
practical options the owner 3.6. Enforced change of destination
chooses as part of the business Whereas Clause 8.2 deals with a change in
without thinking whether they transit brought about by the Assured’s own
will have an impact on actions, Clause 8.3 deals with a situation
insurance cover. where the course of the transit is changed by
events which are outside the Assured’s
3.5. Voluntary change of destination control, viz.:
Clause 8.2 will operate where, at some time 8.3 This insurance shall remain in force
after the commencement of the insured (subject to termination as provided for in
transit but before its termination in any of the Clauses 8.1.1 to 8.1.4 above and to the
circumstances under 8.1, the Assured provisions of Clause 9 below) during delay
decides to change the final destination to beyond the control of the Assured, any
which the goods are to be carried. This may deviation, forced discharge, reshipment or
happen in certain bulk trades where goods transhipment and during any variation of the
are sometimes sold on during the insured adventure arising from the exercise of a
transit and the buyer may wish to have them liberty granted to carriers [shipowners or
forwarded to a different destination. The charterers] under the contract of carriage
clause reads: [affreightment].
8.2 If, after discharge overside from the This clause provides considerable protection
oversea vessel at the final port of discharge, to an innocent Assured, notwithstanding that
but prior to termination of this insurance, [the the insured transit may take on a route or
goods are] the subject-matter insured is to be character that was not originally
forwarded to a destination other than that to contemplated by underwriters when
which it is insured [they are insured accepting the risk. Clause 9 refers to a
hereunder], this insurance, whilst remaining situation where the carrier terminates the
subject to termination as provided [for above] contract prematurely and is dealt with below.
in Clauses 8.1.1 to 8.1.4, shall not extend
beyond the time the subject-matter insured is
 31

It is important to note that this otherwise specially agreed, until the expiry of
clause is only saying that 60 days after arrival of the subject-matter
insurers will stay on risk, not insured at such port or place, whichever shall
that they will necessarily cover first occur…
any loss, damage or expense
incurred. The normal coverage This contemplates the goods not being
and exclusions will still apply. forwarded from the place at which the
adventure has prematurely ended. They
3.7. When the adventure terminates remain insured until sold there or for 60 days
from the moment of arrival there, if they
prematurely
haven’t been sold in that time.
9. If owing to circumstances beyond the
control of the Assured … … or

It is straightaway apparent that this clause 9.2. if the subject-matter insured is

does not apply to events that are within the forwarded within the said period of 60 days
Assured’s control. The clause then sets out (or any agreed extension thereof) to the
the two circumstances in which it will apply. destination named in the contract of
insurance or to any other destination, until
… either the contract of carriage is terminated in accordance with the provisions
terminated at a port or place other than the of Clause 8 above.
destination named therein or …
The other alternative is that the goods will be
… the transit is otherwise terminated before forwarded, in which case this part of the
unloading [delivery] of the subject-matter clause applies. Because the insurance will
insured as provided for in Clause 8 above, … automatically cease 60 days after arrival (as
in 9.1 above), the Assured must specifically
The clause then sets out what will happen in request more time if forwarding cannot take
either of those circumstances … place within that time. The goods will be
insured through to their original destination,
…then this insurance shall also terminate …
or to any other destination agreed with the
On the face of it, that is quite dramatic. underwriters.
Fortunately, underwriters soften the position
by adding, in italicised letters: 3.8. When the Assured changes the
destination
…unless prompt notice is given to the
Insurers and continuation of cover is If, after the risk has already started, the
requested … goods are sent to a different destination port
to that agreed with the underwriters, that is
…when this insurance shall remain in force, known as a change of voyage. In English law
subject to an additional premium if required this would automatically discharge
by the Insurers … underwriters from liability for any loss or
damage occurring after the decision to
Thus, provided the Assured requests change the voyage has been made. The
continued cover and pays an extra premium if reason for this is that the adventure is no
the underwriter demands it, cover will longer the one originally contemplated by the
continue unbroken. Note, however, that in the underwriters when they agreed to take on the
absence of this specific request by the risk.
Assured, the insurance will terminate
automatically. The clause then goes on to In the ICC, underwriters soften the position
describe the circumstances in which the where there is a change of voyage, viz.:
cover will continue.
10.1 Where, after attachment of this
…either insurance, the destination is changed by the
Assured, this must be notified promptly to
9.1 until the subject-matter insured is sold Insurers for rates and terms to be agreed.
and delivered at such port or place, or, unless Should a loss occur prior to such agreement
 32

being obtained cover may be provided but completely innocent of the change of
only if cover would have been available at a destination.
reasonable commercial market rate on
reasonable market terms. Think again about the
practicalities. If the cargo is a
Thus, the insurance will not automatically small parcel loaded on a large
terminate if the Assured changes the voyage, vessel and the carriage
but the underwriters must be notified of the documents have a liberty
change as soon as possible and they are clause in them, the carrier
entitled to renegotiate the premium and terms essentially will be free to
of cover to reflect the fact that the risk has undertake a journey that is in
now changed. This is italicised in the printed some way different to the one
clauses to emphasise its importance. originally anticipated, and the
cargo interests will have little
This is another example of or no ability to object, or to
where the insured can be control the journey.
caught out if the right is
exercised to make a business Contrast this with the situation
decision to change the where the amount of cargo is
journey, entirely without substantial and in fact fills the
thinking about the impact that entire ship. The cargo interests
it will have on the insurance if are in a far stronger position,
the insurers are not advised although if they have still
promptly. entered into a carriage
contract (for example a voyage
3.9. When the carrier changes the charter) which has such liberty
destination provisions, they will potentially
Clause 10 has traditionally dealt only with the find the same problems
situation of the Assured changing the occurring.
destination. A new sub-clause has been
introduced in the 1/1/09 clauses to deal with
3.10. Summary
the situation where it is the carrier who From chapters 1, 2 and 3, it should be
(without the Assured’s knowledge) changes apparent that the claims adjuster needs to be
the destination. satisfied of several things before approving a
claim:
10.2. Where the subject-matter insured
commences the transit contemplated by this ■ That the loss or damage was caused by a
insurance (in accordance with Clause 8.1), peril covered by the policy.
but, without the knowledge of the Assured or
their employees the ship sails for another ■ That the peril operated during the period
destination, this insurance will nevertheless the insurance was in force.
be deemed to have attached at
commencement of such transit. ■ That the claim is not defeated by one of
the exclusions in the policy.
This fills what was perceived to be a gap in
the 1/1/82 clauses and makes it clear that the ■ If there were circumstances that might
cover will be unaffected – and there will be no have caused the insured transit to terminate
need to renegotiate terms – if the Assured is prematurely, that the loss or damage did not
occur after that termination.
 33

Chapter 4
Warranties
 34

Contents
4.1. Introduction 35
4.2. Types of warranty 35
4.3. Breach of warranty 36
4.4. Providing information to insurers when the insurance is being purchased 38
 35

4.1. Introduction Institute Cargo Clauses (because they

incorporate an English law provision) which
There are certain terms in a policy that are defines a warranty as follows:
not perils or exclusions but have a serious
impact on whether a claim might be covered MIA Section 33
or not. These are known as warranties, and
in this chapter, we will be reviewing what (1) A warranty, in the following sections
warranties are, why insurers use them and relating to warranties, means a promissory
what the impact will be if they are breached. warranty, that is to say, a warranty by which
English law in this area changed in August the Assured undertakes that some particular
2016, and insurance contracts for non- thing shall or shall not be done, or that some
consumer or business clients created after condition shall be fulfilled, or whereby he
that time can be subject to either the “old” law affirms or negates the existence of a
or the “new” law at the parties’ choice. In this particular state of facts.
context a non-consumer is an insured who
purchases insurance relating to their trade, (2) A warranty may be express or implied.
business or profession.
(3) A warranty, as above defined, is a
In this material both legal positions will be condition which must be exactly complied
explained as their impact on claims will be with, whether it be material to the risk or not.
different. Within the module, the content will If it be not so complied with, then, subject to
be clearly labelled old law and new law. any express provision in the policy, the
insurer is discharged from liability as from the
Additionally, English law has also changed in date of the breach of warranty, but without
relation to the requirement for the insured to prejudice to any liability incurred by him
provide information to the insurers at the time before that date.
of placement. The old law referred to a duty
of utmost good faith and the new law uses Some typical examples are:
the notion of duty of fair presentation. Both of
■ ‘Warranted only new jute bags to be used’.
these concepts will be discussed later in this
module. ■ ‘Warranted loading and discharge to be
It is always important to remember that many supervised by surveyors approved by
of these requirements exist only if a policy is underwriters’.
subject to English law, and care should be
■ ‘Moisture content not to exceed 12% at
taken to check the applicable law of any
time of loading’.
policy. The Institute Cargo Clauses have an
inbuilt provision that they will be subject to The word warranty or warranted does not
English law, but this can be overridden by necessarily have to appear, provided the
either party as part of the contract. intention is clear that some particular thing is
to be done (or not done, as the case may be)
4.2. Types of warranty or that some particular condition is to be met.
Warranties in insurance contracts are very
important. Breach of a warranty can have Most warranties are express warranties. This
means that the terms of the warranty are
disastrous consequences for an Assured. So,
what is a warranty? In very simple terms it is expressly set out in the contract, as per the
examples above.
either:
There are some implied warranties, too.
■ A promise to do something.
These are warranties that are automatically
■ An agreement not to do something. assumed to apply to the contract without
having to be specifically mentioned. The most
Old law position – MIA 1906 important implied warranties so far as cargo
is concerned are:
The fundamental English law on warranties
was contained within The Marine Insurance ■ that the ship shall be seaworthy at the
Act (1906), the provisions of which apply to commencement of the voyage;
 36

■ that the ship is reasonably fit to carry the However:

goods to destination;
■ They would not be liable for any loss or
■ that the adventure insured is a lawful one. damage which occurred after the breach
happened, even if the loss or damage was
MIA Section 39 itself completely unconnected to the breach.
(1) In a voyage policy there is an implied MIA Section 34
warranty that at the commencement of the
voyage the ship shall be seaworthy for the (1) Non-compliance with a warranty is
purpose of the particular adventure insured. excused when, by reason of a change of
circumstances, the warranty ceases to be
MIA Section 40 applicable to the circumstances of the
contract, or when compliance with the
(2) In a voyage policy on goods or other warranty is rendered unlawful by any
moveables there is an implied warranty that subsequent law.
at the commencement of the voyage the ship
is not only seaworthy as a ship, but also that (2) Where a warranty is broken, the Assured
she is reasonably fit to carry the goods or cannot avail himself of the defence that the
other moveables to the destination breach has been remedied, and the warranty
contemplated by the policy. complied with, before loss.
MIA Section 41 (3) A breach of warranty may be waived by
the insurer.
There is an implied warranty that the
adventure insured is a lawful one, and that, Once the breach has occurred, the Assured
so far as the Assured can control the matter, loses all rights under the contract from that
the adventure shall be carried out in a lawful moment on. The fact that they may
manner. subsequently remedy the breach and put
things right does not alter the situation.
What this means is that some of Neither does the fact that the breach might
these promises do not actually have been entirely innocent. A breach of
have to be written into the warranty is fatal to any claim that occurs
policy. subsequent to the breach.
However, the insured is still
expected to know what they are
and what they need to do in
order to comply – a good broker
should ensure that their clients
know what they have to do.

4.3. Breach of warranty

Where a warranty exists in the contract, the
Assured must comply with it exactly,
otherwise the warranty is said to have been
breached and the following will apply:

Old law position – MIA 1906

■ Underwriters are entitled to avoid the

policy as from the moment the breach
occurred.

■ Underwriters would remain liable for any

loss or damage which occurred before the
breach happened.
 37

Think about this example. New law position – Insurance Act

There is a warranty about the 2015
use of new jute bags – the
Following the coming into force of the
insured actually uses second-
Insurance Act 2015 on 12th August 2016, the
hand bags, which has had no
provisions of the MIA 1906 relating to
impact on the loss at all.
warranties have been amended.
However, because the
warranty or promise has not The concept of promissory warranties can be
been exactly complied with, express or implied still exist, and the main
underwriters are discharged changes are:
from liability from the moment
the warranty was breached – ■ Breach leads to the policy being
which might be the inception of suspended rather than ending altogether
the policy if the goods went
only into the second-hand ■ A concept of materiality between the
bags. breach and any loss has also been
introduced.
Consider this second example.
The insured started loading The key provisions of the Insurance Act read
the cargo into the second- as follows:
hand bags but then found out
S 10 (2)
about the warranty, so
immediately started moving “An insurer has no liability under a contract of
the cargo into new bags. It insurance in respect of any loss occurring, or
was after that was done that attributable to something happening, after a
the loss occurred. warranty (express or implied) in the contract
Unfortunately, sorting the has been breached but before the breach has
problem out is not enough in been remedied.”
law and underwriters are still
discharged from liability. Therefore, if a loss arose during the time the
policy was suspended then insurers might not
The underwriter may, however, choose to have to pay, however there is a caveat in that
waive the breach and treat the contract as if under the new law S 10 (3), the insured can
the breach had not happened. This is a show that there was no link between the
matter of choice for the underwriter – it is not breach and any loss that occurred then
binding that the breach be waived. insurers cannot decline the claim.
With regard to the implied warranties of The actual wording of S 11 of the Insurance
seaworthiness of the ship and fitness of the Act 2015 is this:
ship to carry the goods to destination, it has
long been recognised that these are matters “(1) This section applies to a term (express or
which are largely beyond the control of the implied) of a contract of insurance, other than
cargo Assured. As seen when dealing with a term defining the risk as a whole, if
exclusions in chapter 2, the application of compliance with it would tend to reduce the
these warranties of seaworthiness and fitness risk of one or more of the following—
is softened in the Institute Cargo Clauses.
(a) loss of a particular kind,
Can you remember how the
(b) loss at a particular location,
clauses soften the position in
relation to unseaworthiness? If (c) loss at a particular time.
not, refer back to chapter 2 to
refresh your knowledge. (2) If a loss occurs, and the term has not
been complied with, the insurer may not rely
on the non-compliance to exclude, limit or
 38

discharge its liability under the contract for

the loss if the insured satisfies subsection (3).
4.4. Providing information to insurers
(3) The insured satisfies this subsection if it
when the insurance is being
can show that the non-compliance with the
term could not have increased the risk of the purchased
loss which actually occurred in the This area of English insurance law has also
circumstances in which it occurred.” changed under the Insurance Act 2015, and
as with warranties, the parties to the
So how will the new law work in practice and insurance contract can agree to use old law if
how might a Lloyd’s Agent be asked to think they prefer so both positions will be
about this? discussed now.
If the insurer puts a warranty on a cargo Old law position – MIA 1906
policy about how the goods should be
labelled, and that warranty is not complied 4.3.1 Utmost good faith
with, under the new law the policy will
suspend, but if the insured can show (and it A contract of insurance is considered to be a
is for the insured to prove) that the loss that contract made in the utmost good faith (the
did happen would have happened in any legal term used is uberrimae fidei). In other
event, notwithstanding the breach of warranty words, both parties to the contract are
then insurers cannot decline the claim. expected to act honestly and openly towards
each other. When an underwriter is
The challenge with this change in the law is considering whether or not to insure a
that there now has to be a causal link particular risk, two important decisions must
between the breach and the loss for insurers made:
to exclude, limit or discharge its liability and
this depends on the insured being able to a. Is the risk one that the underwriter is
prove that non-compliance would not have prepared to take at all?
increased the risk of loss which actually
occurred. S 11 of the Insurance Act 2015 b. How much premium should be charged
does not apply to “terms that define the risk and what terms and conditions should be
as a whole.” This is because the term it has applied?
failed to comply with is one that defines the
To answer these questions, the underwriter is
risk as a whole and not one which would
wholly reliant on the information provided by
reduce the risk of the loss. However, until
the Assured, and is therefore entitled to think
matters are tested in court it might not always
that the information is honest and complete. If
be entirely clear as to which term in a
it is not, then the validity of the contract may
contract falls within this category!
be affected, and the underwriter may be
What insurers have been recommended to entitled to avoid paying any claim that
do is to put clearly any requirements in the subsequently arises under the contract.
policy and also to make clear what the
There are several circumstances in which the
resulting impact will be of non-compliance, so
insurance contract might be at risk because
it is obvious to all parties involved.
of things that were not made known to the
From an Agent’s perspective, underwriter at the time it was negotiated.
you might be asked whether 4.3.2 Non-disclosure
something impacted on the
loss that did occur, but you The Assured has to disclose to the
should not have to consider underwriter anything which it is important for
the impact on the insurance. If the underwriter to know in assessing whether
you have claims settlement to insure the risk.
authority, and are in any
doubt, always refer to your The information which the Assured must
principals for guidance. disclose is known as ‘material facts’ and a
fact is material if it would influence the
 39

judgement of the underwriter with regard to negotiated, the duty of good faith applies
4.3.1 points a) and b). The Assured is throughout, even after the policy has come
expected to know every material fact that an into force. Thus, if there is a clause in the
Assured in that particular line of business policy that says a particular circumstance, if it
should reasonably know. arises, will be held covered on payment of an
additional premium and the Assured, hoping
If an Assured fails to disclose a material fact to avoid that additional premium, delays
before the insurance contract is concluded, notifying the underwriters of its happening ‘to
the underwriter is entitled to avoid the see how things turn out’, this would be a lack
contract (i.e. treat it as never having come of good faith on the part of the Assured.
into effect). Non-disclosure does not Again, where there has been a lack of good
automatically mean that the policy is void. faith by the Assured, the underwriter may
The underwriter may choose to ignore the choose to avoid the contract.
fact that something material was not
disclosed and carry on as normal. Insurers have to make a
choice one way or the other
Whether any particular fact is material or not about avoidance, and this
would depend on the circumstances. Failing must be done as soon as
to disclose that there has been a history of possible. There will inevitably
losses on the particular risk being insured be a delay while the insurers
has been held to be non-disclosure. gather evidence and decide
what to do, and it is very
4.3.3 Misrepresentation
important that nothing is done
Misrepresentation is where the underwriter in relation to the claim which
has been given a fact that is relied on in might give the consignee a
deciding whether to insure the risk, but which false impression about the
then turns out to be untrue. Even if there has situation (whether that be
been an innocent declaration of something as positive or negative). Once the
‘fact’ when it is not true, it will be deemed to Agent is made aware that the
be misrepresentation and entitle the insurers are considering this
underwriter to avoid the contract. The only matter they should wait for
exception to this is where the Assured, acting further instruction from the
in good faith, makes it clear that something is insurers.
believed to be true or that some particular Where the underwriter chooses to avoid the
thing is expected to happen, but which then contract in any of the above circumstances, it
turns out not be true or not to happen. is usual for the premium to be returned to the
A point to remember here is that the broker is Assured and the policy treated as never
considered to be the agent of the Assured. having existed.
Generally, if the broker fails to disclose a An exception to this is where the Assured has
material fact or misrepresents something that acted fraudulently or illegally: in such
is material, this will be deemed to be non- circumstances there would be no return of
disclosure or misrepresentation as though by
premium.
the Assured and the underwriter is still
entitled to avoid the policy.

The broker has a separate and positive duty

of utmost good faith under the Marine
Insurance Act 1906, and therefore should
ensure that there is liaison with the client in
relation to any information in the client’s
possession that does not appear to have
been disclosed to the insurers already.

Whereas non-disclosure and

misrepresentation apply while the contract is
 40

It is usually the case that than offering one remedy only which the old
concern about a potential law does.
breach of the duty of utmost
good faith will arise at the time Finally, what the new law does is make clear
of a claim, where information what the insured and insurer know, ought to
presented suggests to the know or are presumed to know.
insurer that the risk was not
The key provisions of the new law contained
entirely in accordance with
in the Insurance Act 2015 are as follows:
their expectations
Section 3 – Duty of fair presentation
The Lloyd’s Agent will not
have been involved in the Includes sub sections 1-6
placement of the risk so will be
highly unlikely to be able to “Subsection (1)
comment either way on the
subject and whether the duty Before a contract of insurance is entered into,
has or has not been complied the insured must make to the insurer a fair
with. However, should any presentation of the risk.”
Agent have grounds for belief “Subsection (3)
or concern about anything
relating to the risk, then they A fair presentation of the risk is a
should draw it to the insurer’s presentation:
attention immediately and
seek their guidance. (a) which makes the disclosure required by
subsection (4),
However, when making such a
referral, the Agent should not (b) which makes that disclosure in a manner
disclose the reason for any which would be reasonably clear and
such communication and accessible to a prudent insurer, and
related delay to the consignee
or any other cargo interests (c) in which every material representation as
without the insurer’s to a matter of fact is substantially correct, and
permission. every material representation as to a matter
of expectation or belief is made in good faith.”
New law position
“Subsection (4)
As with the law on warranties the provisions
of the Insurance Act 2015 amend the old law The disclosure required is as follows, except
contained in the Marine Insurance Act on the as provided in subsection (5):
duty of fair presentation. The new law keeps
(a) disclosure of every material circumstance
the historic idea of having to share material
which the insured knows or ought to know, or
information with the insurers but does several
key things: (b) failing that, disclosure which gives the
insurer sufficient information to put a prudent
■ Does not distinguish between disclosures
insurer on notice that it needs to make further
and representations and combines them both
enquiries for the purpose of revealing those
into a duty of fair presentation.
material circumstances. “
■ Makes clear that the insurers also have to
“Subsection (5)
ask questions about what they are shown
and follow up on things – but must be given In the absence of enquiry, subsection (4)
information in a clear and accessible manner. does not require the insured to disclose a
circumstance if:
■ The law now expressly creates a set of
proportional remedies to a failure to comply (a) it diminishes the risk,
with the new duty of fair presentation rather
 41

(b) the insurer knows it, ■. If the risk would have been written but on
different terms or conditions (not including
(c) the insurer ought to know it, premium) then the contract can be effectively
rewritten including those other terms from
(d) the insurer is presumed to know it, or inception.
(e) it is something as to which the insurer ■. If the risk would have been written but a
waives information.” higher premium would have been charged,
Section 4 – Knowledge of Insured then the remedy is that any claims arising will
be reduced in a proportionate basis. The
Includes sub sections 1-8 proportion will be the proportion that the
premium paid represents of the premium that
Knowledge of insured gives some guidance should have been paid. Therefore, if the
as to what efforts the insured must make to insurer would have charged GBP 100 of
look for relevant information. premium had they known about the new
information but only charged GBP 80, then
Subsection (6) only 80% of the value of any claims will be
paid. From a practical perspective, this will be
Whether an individual or not, an insured
a harsher penalty on an insured than just
ought to know what should reasonably have
paying the additional premium, so some
been revealed by a reasonable search of
negotiation will probably take place if such a
information available to the insured (whether
situation arises – however that is the strict
the search is conducted by making enquiries
legal position.
or by any other means).
If the issue arises in relation to a change in
In subsection (6) “information” includes
the insurance during the currency of the
information held within the insured’s
policy, then the same provisions apply – the
organisation or by any other person (such as
insured has a duty of fair presentation and
provided by the contract of insurance).
there will be a number of remedies available:
As with the old law, the broker’s role is very
■ If the breach was deliberate or reckless –
important as their knowledge will be assumed
the contract can be cancelled from the time at
to be within the insured’s knowledge (as the
which the variation was made with no return
broker is the agent of the insured). Whilst it is
or premium.
not a separate duty of disclosure which exists
in the old law, the broker should always make ■ If the breach was neither deliberate or
sure that all relevant information is shared reckless then the remedy as with original
with the insurers. contract creation depends on what the
insurers would have done had there been no
So, if there is a potential breach what are the
breach.
new remedies? The starting point has to be a
consideration of whether the breach was ■ If they would have not agreed to any
done deliberately or recklessly. If insurers variation to the contract then the contract will
can prove this, then they can cancel the be treated as if no variation had been made –
insurance from inception and keep the but insurers have to return any additional
premium. premium paid.
If it is more likely the breach was not ■ If they would have agreed different terms
deliberate or reckless but merely accidental (including an increase in premium) then the
or careless then there are three remedies contract will be treated as if those different
which are based on what the insurers would terms apply.
have done had they received all the
information at the start. ■ If the change made resulted in a reduction
in premium then the insurer will be able to
■. If they would not have written the risk at proportionately reduce any claims payments
all, then the risk can be cancelled from
inception, but the premium must be returned.
 42

So, what does it mean for a .

Lloyd’s Agent in practice? The
fact that something may not
have been advised to insurers
at the time the risk was placed
is often highlighted at the time
of a claim, so it might be that a
survey report brings the
problem to the insurers’
attention.

In terms of deciding what was

or was not advised to insurers,
only they will know the answer
and so this should never be a
decision that an Agent has to
make. For those agents with
claims settlement authority,
should something come to
your attention during the
survey or adjustment process
which you think might be
relevant to this point, refer it to
your principals immediately.

.
 43

Chapter 5
Types of Loss and
Measures of Indemnity
 44

Content
5.1. Introduction 45
5.2. Partial loss 45
5.3. Total loss 47
5.4. Salvage loss 49
5.5. Fear of loss 50
5.6. Increased Value policies 50
 45

5.1. Introduction Example two – Cargo partially damaged

In this chapter we will look at the various If only 37 of the 60 cases had been delivered
types of loss that can arise to cargo and damaged and the rest were sound, the
consider how the type of loss affects how the percentage depreciation would be applied
claim will be adjusted. only to the insured value of the 37 cases, as
follows:
5.2. Partial loss
60 cases insured value $66,000
The only definition of ‘partial loss’ is the one 37 cases insured value in proportion
which appears in the Marine Insurance Act ($66,000/60 x 37) $40,700
1906. It is not a particularly helpful definition
as it says simply that a partial loss is any loss Depreciation thereon at 25%
that is not a total loss. In practice, there will ($40,700 x 25%) $10,175
be a partial loss where the subject-matter
insured has suffered loss or damage but: Always remember to apply the
depreciation only to the
■ it still retains some measure of value, or;
proportion of the insured value
■ only a part of it is lost or damaged, the rest that relates to the damaged
being sound. cargo.

Where there is a partial loss of goods, it will b. Damaged goods sold at auction
usually be dealt with in one or more of the In many cases, the surveyor will be unable to
following ways: agree an allowance or percentage
■ The surveyor will agree the amount of depreciation with the Assured. The amount of
depreciation (usually expressed as a loss then needs to be ascertained by offering
percentage of value). the damaged goods for sale to the highest
bidder. The resulting claims will then be
■ The goods will be sold and a percentage calculated as follows:
depreciation determined by a comparison of
sound market value and sale value. Example one - All cargo damaged

■ The goods will be reconditioned or 60 cases of Fizzles are valued at CIF

repaired and the claim will be based on the $60,000 and insured for $66,000. All 60
charges incurred in so doing. cases are delivered wet-damaged by an
insured peril. The goods are sold at auction
Partial loss – measure of indemnity for $40,000. The amount the Assured
receives after sale charges of $1,200 is
a. Agreed depreciation $38,800. The claim on the policy is:
Where the surveyor agrees a depreciation 60 cases value in sound condition $60,000
with the Assured, this would normally be Sold for gross proceeds of $40,000
expressed as a percentage of value. The Depreciation is $20,000
claim on the policy would be that percentage or 33.33333%
applied to the insured value, as follows:
The claim on the policy is the insured value of
Example one - All cargo damaged $66,000 x 33.33333% $22,000
60 cases of Fizzles are valued at CIF
Plus sale charges $1,200
$60,000 and insured for $66,000. All 60
cases are delivered wet- damaged by an
Claim on the policy $23,200
insured peril. The surveyor agrees a 25%
depreciation with the Assured. The claim is:

Insured value of 60 cases $66,000 x 25%

depreciation $16,500
 46

Note that it is always the gross the sale took place (which is not necessarily
proceeds that are used when the pure CIF value).
calculating the percentage
depreciation that arises from a There are certain things that may need to be
sale. The sale charges are taken into account. The first of these is
added at the end of the claim as customs duty. If the goods have already been
an extra charge. imported into the country and the sale takes
place inland, it is likely that the Assured will
Example two - Part cargo damaged have become liable for customs duty at the
time of removing the goods from the port
If only a part of the goods was damaged and area.
sold, the same principles would apply. Thus,
if only 15 cases had suffered damage and Example
these were sold for gross proceeds of
$10,000, with the Assured receiving $9,700 If Fizzles attract customs duty at 3% and the
after deduction of sale charges of $300, the sale has taken place at final inland
claim would be calculated as follows: destination, this needs to be taken into
account when calculating the figure.
60 cases CIF value $60,000
Insured value $66,000 Thus, our 60 cases of Fizzles have an actual
sound value at the time and place of sale of:
15 cases in proportion – CIF value $15,000
Insured value $16,500 CIF Value $60,000
Plus duty at 3% $1,800
15 cases sold for proceeds of $10,000
Depreciation is $5,000 Sound value on date of sale $61,800
or 33.33333% Gross proceeds of sale $40,000

Depreciation $21,800
The claim on the policy is the insured value of or 35.27508%
$16,500 x 33.33333% $5,500
The claim on the policy is the insured value of
Plus sale charges $300 $66,000 x 35.27508% $23,282
Claim on the policy $5,800 Plus sale charges $1,200
Always remember to calculate
Claim on the policy $24,482
the depreciation in relation to
the portion of the CIF value if
(Cents have been ignored for convenience)
the calculation is being done
using gross proceeds following b. Rising and falling markets
a sale. For an agreed
depreciation, you can just apply The next thing to bear in mind is that certain
the agreed percentage directly commodities can rise or fall in value
to the insured value. depending on demand and other market
conditions. These variations in value can
Important things to consider when dealing happen even on a daily basis. Therefore the
with depreciation calculations sound market value at the time and place of
the sale may be substantially different from
a. Like-for-like comparison
the invoice value, and hence the invoice
When calculating a claim for depreciation on value should not be used as the basis of the
goods that are sold for proceeds, it is depreciation calculation.
important to ensure that ‘like is compared
with like’. In other words, the gross proceeds It follows from this that, when the price of a
particular commodity is high, so the value of
that are obtained must be compared with
that commodity in damaged condition will
what the goods would have been worth in
sound condition at the place and on the day also be correspondingly higher, and vice
 47

versa. It is therefore very important to check with the sound market value at the time and
the local market for the commodity you are place of sale will shield insurers from market
dealing with to find out what the actual fluctuations. Such fluctuations are
market value is on the appropriate date. commercial risks, not physical risks.

Example - Rising market 5.3. Total loss

Let us assume that our claim is for wet- There are two categories of total loss:
damaged bulk Fizzle Powder. The Assured
purchased 10,000 tons at a CIF price of $200 ■ Actual Total Loss (commonly referred to as
per ton. The insured value is $2,200,000. The an ATL)
market for Fizzle Powder had been rising and
■ Constructive Total Loss (commonly
the 10,000 tons were sold in damaged
referred to as a CTL)
condition at auction for $180 per ton. The
sound market value on the day of sale was Actual Total Loss
$240 per ton. The claim would be calculated
as follows: An ATL occurs usually when the property
insured is either:
10,000 tons Fizzle Powder insured value
$2,200,000 ■ destroyed, or;
Sound market value $240 per ton
Gross proceeds of sale $180 per ton ■ so badly damaged that it ceases to be a
thing of the kind insured.
Depreciation $60 per ton
or 25% There is also an ATL when the Assured is
irretrievably (permanently) deprived of the
The claim on the policy is the insured value of insured property.
$2,200,000 x 25% $550,000
When there is an ATL of the subject-matter
Example - Falling market insured, the claim on the policy is for the full
insured value thereof.
However, if the market for Fizzle Powder had
been falling, then the value of this commodity ATL through loss of specie
in damaged condition would also have fallen. It sometimes happens that the insured
Let us suppose that the sound market value property arrives at destination, and still has
on the day of sale was $190 per ton and that some value, but is no longer ‘a thing of the
the proceeds of sale in damaged condition kind insured’. This is often referred to as a
were $142.50 per ton. The claim would then loss of specie.
be calculated as follows:
Examples of loss of specie
10,000 tons Fizzle Powder
Insured value $2,200,000
Metal goods intended for use
Sound market value $190.00 per ton
in manufacture have become
Damaged Value $142.50 per ton
damaged and are no longer fit
for their intended purpose.
Depreciation $47.50 per ton
or 25%
Wood that has burnt and has
turned into charcoal.
The claim on the policy is the insured value of
$2,200,000 x 25% $550,000 The metal and wood in the examples above
may, however, still have a value and be
It will be seen that the result in either case is capable of fetching proceeds by way of sale.
the same. If the cargo has suffered a
deterioration to the extent of 25%, then that is In such a case, the claim on the policy would
the amount the insurers should pay, be for the insured value of the goods, but
regardless of whether the market is rising or underwriters would be entitled to a credit for
falling. Comparing the gross proceeds of sale the net proceeds of sale.
 48

Ask your surveying colleagues A CTL occurs when the Assured reasonably
for examples of cargoes they abandons the property in circumstances
have seen where they have where:
been asked to assist with
finding a salvage market on ■ an ATL seems unavoidable, or;
behalf of insurers who will take
■ the insured property cannot be preserved
ownership of the cargo when
from an ATL without an expenditure which
they pay out a total loss.
would exceed its value when the expenditure
had been incurred.
Ideally the insurers would time
the insurance payout to take CTL because ATL seems unavoidable
the credit for net proceeds as
part of the claims calculation, The first of these circumstances suggests a
rather than having to pay out situation where the facts are not clear, i.e. it
the full amount of a total loss is not established beyond all doubt that the
and then separately have to goods are an ATL but, on the balance of
organise the sale of the cargo. evidence, they probably are. Underwriters
therefore give the Assured the benefit of the
doubt and treat the claim as if it were an ATL.
Watch out for the situations A practical example might be a
(under partial loss) where goods perishable cargo which is in a
that are still in specie (ie are still damaged ship and cannot be
the same thing that was fully inspected at this point in
shipped) have suffered a time. Consider any other
deterioration and are sold as examples that you or your
such. The distinction is colleagues might have come
sometimes a fine one in across in the past.
practice.
CTL because preservation from ATL will
ATL through deprivation be too costly
There may sometimes be circumstances With regard to the second of the above
where the goods remain in perfectly sound circumstances, whether the property is worth
condition but there is an ATL because the preserving, recovering, or repairing will
Assured is permanently deprived thereof. depend upon the facts of each case. In
Such circumstances are likely to be rare, but general, no prudent person would spend,
an example would be the following. say, $50,000, on reconditioning goods if their
value once reconditioned would only be
Example
$40,000.
A ship is carried by a tidal wave and comes
to rest inland at a remote, inaccessible place
from which neither the ship, nor the cargo on
board, can be rescued. The cargo may still
be perfectly sound but the Assured is
irretrievably deprived thereof. The claim
would be for ATL and the policy would pay
the full insured value. If, however, at some
point the cargo could be rescued and sold,
then the proceeds would be for insurers’
account as they would have taken over the
full rights in the cargo having paid a total loss.

Constructive Total Loss

 49

In the Marine Insurance Act ownership – for example, the cost of

1906 (section 60) there are removing the property from the place at
some practical examples of which it has been abandoned. There is in
CTL which include: addition the entirely practical issue of what
insurers would do with the damaged cargo
■ Where insured is deprived of they now own.
possession of goods by a peril
insured against and it is There is nothing in English law that says the
unlikely that they will be underwriters must take over ownership of the
recovered or the cost would insured property in the case of a total loss,
exceed the value when even when the Assured expresses the wish
recovered. (Note, the measure to abandon it to them. Underwriters are
of deprivation for CTL is entitled to take over whatever remains of the
‘unlikely to recover’, as insured property on payment of a total loss,
opposed to ‘permanent but it is a matter for their discretion. As
deprivation’ which is required above, they invariably decline to do so, hence
for ATL.) the practice of routinely refusing to accept the
notice of abandonment.
■ Where the cost of repairing
the damage to goods and The practicalities of tendering
forwarding them to their notice of abandonment are not
destination would exceed their usually something that the
value on arrival. Lloyd’s Agents will have to
worry about. The broker will
As with an ATL, the amount the policy pays in usually provide a formal notice
the event of a CTL is the full insured value of to the insurers who will then
the subject- matter insured. Underwriters are formally decline (although in
entitled to a credit for any proceeds (net of certain circumstances they
sale charges) that may be obtained for might choose to accept).
whatever remains of the goods.
5.4. Salvage loss
Notice of abandonment
There is a further category of loss that is
The distinction between an ATL and a CTL is unique to cargo and that is a so-called
important. With an ATL there is certainty, i.e. ‘salvage loss’. It is neither a partial loss nor a
the goods are totally lost as a matter of fact. total loss and seems to have arisen as a
This is not necessarily the case with a CTL, matter of practice rather than law.
where things tend to hang in the balance, i.e.
an ATL ‘seems’ unavoidable or the cost of A salvage loss is a type of settlement that
saving damaged goods would exceed their takes place when goods are sold at an
value when saved. Both of these situations intermediate place on the voyage, usually
are likely to require some investigation before when goods are landed at a port of distress
the true situation can be established. and are in damaged condition. The rationale
is that, if they are forwarded to destination,
For this reason (in English law at least), an they will either become a total loss by the
Assured claiming for a CTL is required to give time they arrive or will have deteriorated
notice to the insurers that it is intended to much further. On this basis underwriters are
abandon the subject-matter insured to them. in favour of such action as by selling the
This then gives the underwriters an goods for at least some value, the insurance
opportunity to investigate the circumstances claim is thereby reduced.
and to agree (or contest) that there is a total
loss.

In practice, underwriters invariably decline to

accept the abandonment as, to do so, might
land them with liabilities that go with
 50

There is a difference between or analysis, is found to be perfectly sound.

the calculations, which is why However, the Assured may argue – with
care must be taken to consider some justification – that, simply by
which is the appropriate association, the cargo in the third hold can no
calculation to use depending on longer be deemed to be sound; that buyers
where in the journey the goods will not be prepared to pay the full price for it
were sold: ‘just in case’.

■ Salvage loss if sold at a port In theory, the situation is quite simple. The
of refuge or other intermediate Assured cannot prove there has been any
port on the journey, or; physical loss or damage to the cargo in the
third hold, therefore there can be no claim on
■ Agreed depreciation or the policy in respect of it. If buyers are
depreciation calculated through unwilling to pay the full price for it, this is a
sale, if sold at the port of commercial loss arising from fear and not an
destination. insured loss at all. In practice, the claim
would probably be dealt with ‘by negotiation’.
Salvage loss calculation A hard underwriter might refuse to entertain
the claim but, if the Assured is an important
The practice in such circumstances is that the one, the underwriter may well offer an ‘ex
goods are sold, the Assured retains the net gratia’ settlement. (An ex gratia settlement is
proceeds of sale and the underwriters pay a payment made by the underwriters for
the difference between the insured value and purely commercial reasons, or out of
the net proceeds. Thus: sympathy, when no actual claim on the policy
has been proven.)
Salvage loss = insured value less net
proceeds of sale. In theory, though, underwriters have no
liability where a loss is simply feared to be
Although not a total loss, it will be there but is not actually there, or cannot be
appreciated that the claim is calculated on proven.
the same basis as if there was a CTL. Many
Assureds are under the impression that a Even those Agents who have
claim should be calculated in the same way authority to adjust claims should
as when damaged goods are sold at final always refer any matter such as
destination. That is not the case: the salvage this to their principals for the
loss basis of settlement is used only when final decision to be made – any
damaged goods are sold short of destination. decision made to pay the claim
by the insurers will be entirely
5.5. Fear of loss commercial in nature and it is
This is not a category of loss at all but is not usual for Lloyd’s Agents to
something that is commonly encountered make commercial decisions on
when dealing with cargo claims. the part of their principals.

Example 5.6. Increased Value policies

An Assured receives a bulk cargo that has Many bulk commodities are ‘sold on’ during
been carried in three separate holds in the the course of transit.
ship. On arrival of the ship, but prior to Example
discharge, a strange smell or taint is noticed
on the cargo in two of the holds but is not The shipper sells on CIF terms to Trader A
present in the third hold. Cargo from the third and assigns the original insurance to Trader
hold is discharged separately and kept apart A.
from the cargo in the two affected holds. The
cargo in the affected holds is agreed to be During the course of the voyage, Trader A
unfit for purpose and has to be sold at a loss. sells the cargo on at a higher price to Buyer B
The cargo in the third hold, after examination
 51

and assigns the original insurance to Buyer The aggregate insured value
B. is therefore $2,200,000

However, by reason of Buyer B having paid a By virtue of this clause, Insurer A would pay
higher price than the original price paid by 2,000,000 / 2,200,000ths (or 90.91%) of any
Trader A, the insurance is now unlikely to be claim, less any deductible provided for in that
sufficient in value to cover Buyer B’s risk. particular policy.

Buyer B may therefore desire to rectify this by There is a second part to Clause 14 which
taking out additional insurance and this will applies when the subject insurance is itself
be in the nature of a ‘top-up’, ie for the an Increased Value policy. It reads as
difference between the original insured value follows:
and the new insured value that is necessary
to fully cover Buyer B’s needs. 14.2 Where this insurance is on Increased
Value the following clause shall apply:
This is known as an Increased Value policy.
Such policies are quite common but create The agreed value of the subject-matter
problems if, as often happens, the Increased insured shall be deemed to be equal to the
Value insurance is with a different insurer to total amount insured under the primary
the one who underwrote the original policy. It insurance and all Increased Value insurances
is not unusual in some trades for ownership covering the loss and effected on the subject-
of the cargo to pass hands several times and matter insured by the Assured, and liability
there may be an original insurance and more under this insurance shall be in such
than one Increased Value insurance, each proportion as the sum insured under this
with a different underwriter. insurance bears to such total amount insured.

A clause (Clause 14) exists in the Institute In the event of claim the Assured shall
Cargo Clauses to clarify how claims are to be provide the Insurers with evidence of the
dealt with in this situation. The wording in the amounts insured under all other insurances.
1/1/09 clauses differs to that in the earlier
1/1/82 clauses but the effect is the same. Thus, if these were the conditions that
applied to the policy issued by Insurer B in
The first part of the clause deals with the the above example, the claim on that policy
situation where the subject policy is the would be for 150,000/2,200,000ths (or
original or primary insurance. 6.818%) of the loss less any applicable
deductible.
14.1 If any Increased Value insurance is
effected by the Assured on the subject-matter See that the policies all respond
insured under this insurance, the agreed for their share, even though the
value of the subject-matter insured shall be loss might be for a value less
deemed to be increased to the total amount than the sum insured on the
insured under this insurance and all primary or first insurance.
Increased Value insurances covering the
loss, and liability under this insurance shall You should not, however,
be in such proportion as the sum insured assume that the terms and
under this insurance bears to such total conditions will be the same for
amount insured. all the policies. The perils and
exclusions might be different,
Example and a deductible might mean
that one or more of the policies
Insurer A provides the original insurance with will not actually pay out. The
an insured value of $2,000,000 other policies will not pay more
Insurer B provides Increased Value for an just because this has
insured value of $150,000 happened, and it is a risk that
Insurer C provides Increased Value for an the insured has to take.
insured value of $50,000
 52

The insured has the obligation

to ensure that all the insurers
under both the primary and
Increased Value policies are
aware of each other’s
existence, and a Lloyd’s Agent
when adjusting claims under
any of the policies should
always take this into
consideration as the Agent
might not be acting for all of
the various insurers involved.
 53

Chapter 6
Dealing with Charges
 54

Contents
6.1. Introduction 55
6.2. Charges in general 55
6.3. Forwarding charges 56
6.4. Enhanced normal charges 57
6.5. Extra charges 58
6.6. Special or manuscript clauses 58
6.7. Costs of proving claim 59
 55

6.1. Introduction Who has benefited from this action? This

benefits the underwriters, because it is
In this chapter we will review a number of preventing a future possibly large loss and it
different additional elements that can crop up is therefore reasonable that they should
in relation to a claim and consider whether reimburse the cost of repairing the bags.
they are items that insurers should be paying,
or whether, and for what reason, they are Example two
items for the insured’s account.
The bags contain cargo that is to be used by
6.2. Charges in general the consignee in a manufacturing process at
their own premises. When delivered to those
A claim on a cargo policy is likely to include premises – the point at which the insured
not only the claim for loss or damage to the transit ends – it is noticed that some bags are
goods but also charges that the Assured has torn. The consignee incurs a cost in repairing
incurred in dealing with the situation. There is them. Is it now reasonable for the underwriter
a natural assumption by many Assureds that to reimburse those charges?
all charges incurred once the cargo has
become damaged will be covered by the Who benefits from the work? The insurers do
policy. That is not always the case and the not, as they are already off risk once the
claims adjuster should make a proper goods are delivered and anything done after
examination of all of the charges being that time cannot benefit them. It is now the
claimed. consignee who has benefited from this
charge being incurred, not the underwriter. It
As a general rule, charges are recoverable therefore follows that it is the consignee, not
when they have been reasonably and the underwriter, who should bear it.
specifically incurred to reduce the claim that
will result under the policy. In other words, Example three
underwriters have derived a benefit from the
charge being incurred and will therefore The consignee has imported the bags of
reimburse it. In nearly all cases, this will cargo for the purpose of selling them through
mean that the charge was incurred to repair their retail outlets. When the bags are
or recondition damaged cargo and/or to make delivered to the consignee’s central
sure that the risk of further damage was distribution warehouse (at which point the
minimised or avoided. insured transit ends) it is noticed that a
number of bags are torn. The consignee has
Practical examples to test this concept to incur the cost of rebagging the cargo into
further sound bags otherwise they cannot be sold
through the consignee’s retail outlets.
In each case, costs have been incurred to
repair damaged packaging (bags) in Who benefits from this action? It would
circumstances where the original bags have appear that it is the consignee only, but
become damaged by an insured peril during actually the insurers do as well if the bags are
the insured transit. in the format in which the ultimate retail sale
will take place. Without rebagging the
Example one
consignee cannot sell the goods as sound,
The bags are being loaded to a lorry at a port and hence there might be a claim on insurers
warehouse for carriage to final inland because the subject matter of the insurance
destination when it is discovered that some of is both the goods and the bags in which they
them are torn. The Assured claims for the are packed.
cost of repairing the damaged bags or
transferring the contents to new bags. This
exercise has prevented further leakage or
spillage of the cargo during the remainder of
the insured transit (which would form a claim
on the policy).
 56

The distinction between In cases where the cargo is insured under All
examples two and three is a Risks conditions, as in the (A) clauses, this is
subtle but important one. unlikely to present any problems, unless the
Packaging is deemed to be part termination is caused by one of the events
of the subject-matter insured listed in the exclusions in Clauses 4, 5, 6 or 7
when it forms an essential part (see chapter 2 and also the latter part of
of the thing that the Assured Clause 12 shown below).
sells or trades. Certain goods
for retail distribution have The situation is different where the cargo is
diminished or have no insured under the restricted (B) and (C)
saleability if the packaging they clauses. As was shown in chapter 2 above,
are to be sold in is damaged. If these clauses cover only a limited range of
the packaging is merely for perils and the Assured may be in the position
protection and/or carriage of the of having to prove that it was the operation of
goods during transit – but one of those perils which caused the
serves no other practical premature termination of the adventure.
purpose – it is generally not Assuming that the Assured can satisfy the
considered a part of the subject- underwriter on this point, the clause then
matter insured. goes on to say what it will respond for, viz.:

“… the Insurers will reimburse the Assured

for any extra charges properly and
Think about various types of reasonably incurred in unloading storing and
cargo where part of the forwarding the subject-matter insured to the
packaging remains with the destination to which it is insured.”
goods until the retail outlet –
such as flatpack furniture or There are certain qualifications.
bagged rice. What other cargo
■ Firstly the charges must be extra, i.e. they
do you see through your
must be charges of a type that the Assured
ports?
would not normally incur in the usual scheme
of things.
6.3. Forwarding charges
There will be occasions when the adventure ■ Secondly, it is only the costs of unloading,
comes to an end at a port or place short of storing and forwarding the cargo that are
destination. The cargo owner may then be covered by this particular clause.
faced with the expense of recovering the
cargo and getting it to destination by some ■ Thirdly, it needs to be reasonable to incur
those costs in the particular circumstances. If
other means. This situation is dealt with in
the costs incurred would exceed the value of
Clause 12 – the Forwarding Charges Clause
the cargo once it has reached final
– of the Institute Cargo Clauses. The wording
destination then clearly it would not be
of the clause is the same in the (A), (B) and
reasonable to incur the costs in the first
(C) clauses and begins:
place.
“Where, as a result of the operation of a risk
■ Finally, it is forwarding to the destination to
covered by this insurance, the insured transit
which it is insured that is covered. Thus, if the
is terminated at a port or place other than that
to which the subject-matter insured is voyage is prematurely terminated and the
Assured’s cargo is retrieved and forwarded to
covered under this insurance …”
somewhere other than the originally intended
These opening words make it clear that the destination, the costs of so doing are not
clause only applies where the premature automatically covered by this clause and the
termination or abandonment of the adventure Assured should seek the underwriter’s
is caused by a risk that is covered by the approval of the measures undertaken.
policy.
 57

The Assured can recover When dealing with any claim for
costs under this clause even the costs of unloading, storing
though the cargo itself has not or forwarding cargo from an
suffered any damage. What is intermediate port or place on
being avoided by incurring the the insured transit, the claims
costs is a claim on the policy adjuster needs to be satisfied
arising from the failure of the that:
goods to reach the destination
to which they are insured. a. the event which brought
about the situation was a peril
The final part of the Forwarding Charges insured against, and;
Clause makes it clear that:
b. the cause is not one that is
“This Clause 12 … does not apply to general
excluded elsewhere in the
average or salvage charges …”
policy.
As will be seen when dealing
with general average and 6.4. Enhanced normal charges
salvage in chapter 9, there are As stated above, not all charges that flow
circumstances when the costs from a cargo claim will be recoverable under
of unloading and/or storing the policy. There is a category of expense
and/ or forwarding the cargo which underwriters customarily do not pay,
from an intermediate port or known as enhanced normal charges. An
place will be general average enhanced normal charge is a type of expense
expenses or salvage charges. that the Assured would bear even if the cargo
This clause does not apply to had not suffered any damage at all but which
any expenses or charges that has become enhanced (made bigger) by
fall within general average or reason of damage.
salvage.
Example
Additionally, Clause 12 …
In the normal course of events the Assured
“… shall be subject to the exclusions would bear the cost of discharging the cargo
contained in Clauses 4, 5, 6 and 7 above, from barges. By reason of the cargo being
and shall not include charges arising from the wet-damaged these costs are 25% higher
fault negligence insolvency or financial than normal.
default of the Assured or their employees.”
The Assured is likely to say that this increase
The Assured will not be able to recover under is in consequence of the cargo being
the Forwarding Charges Clause if the event damaged and that, therefore, the extra cost
that brought about the premature termination should be recovered from the underwriters.
of the insured transit was one of the excluded However, it has not been incurred with the
events listed in Clauses 4, 5, 6 and 7. intention of reducing the claim on the policy.
It is not physical loss or damage and it is not
Can you remember the detail of the cost of putting right physical loss or
the exclusions? If not, refresh damage.
your memory by reviewing
chapter 2 again.

Neither will the Assured be able to recover

under the Forwarding Charges Clause if the
event that caused the premature termination
was caused by the fault or negligence of the
Assured or their employees or because the
Assured or their employees became insolvent
or financially defaulted.
 58

For any charge being presented ■ Are incurred solely to deal with the
by the insured as part of the damage with the aim of reducing the ultimate
claim, ask yourself the question, claim on the policy.
do the underwriters obtain any
benefit from this charge being ■ Are extraordinary, as the consignee never
incurred? If they do, then they envisaged at the time of buying the cargo that
are more likely to pay it. If, this type of expense would have to be
however, it is just a routine cost incurred.
which happens to be higher
Generally, if the charges meet these criteria
because of damaged cargo,
and it was reasonable to incur them (and, of
such as a discharging cost, then
course, the loss or damage resulted from an
they obtain no benefit and
insured peril), then they will be recoverable
hence will not usually pay it.
under the policy.
6.5. Extra charges
6.6. Special or manuscript clauses
These will nearly always be charges that the
Assured incurs in dealing with damaged It is common practice for brokers to negotiate
cargo at destination, or after discharge at the special clauses to be added to a policy to
final discharge port. They are ‘extra’ in the vary the cover. The type of clauses that might
sense that they are of a nature that it was be added will depend on things such as the
never envisaged would be incurred in the type of cargo being insured, the type of trade
normal scheme of things, ie they are in which the Assured operates, the Assured’s
extraordinary (as opposed to the ordinary particular requirements, etc. Such clauses
charges that have simply been enhanced, as are usually intended to widen the cover or to
in the previous paragraph). Some typical provide clarity in circumstances where there
might be uncertainty as to how a claim should
examples of extra charges are:
be dealt with. These additional clauses are
■ Labour costs of sorting damaged cargo often referred to as ‘manuscript clauses’ or
from sound in a port warehouse so it can be ‘brokers’ clauses’. There are no standard
dealt with. special clauses, each broker tending to have
their own version, although there is a
■ Transport costs in taking damaged cargo measure of similarity between them. Some of
to an unscheduled place for reconditioning. these clauses will deal with how the charges
are to be dealt with in the event of a claim.
■ The costs of repairing or reconditioning the The following are some examples.
cargo.
Sorting Charges Clause
■ Costs of repackaging the reconditioned
cargo for the purpose of transporting it from It is a general principle that underwriters do
the reconditioning premises to the Assured’s not pay for the cost of opening up packages
warehouse. to inspect for damage where no damage is
found. There will be circumstances where, for
■ Sale charges incurred in selling damaged example, some packages show signs of
cargo at auction. having been in contact with water. The
Assured may incur costs in segregating these
The list is obviously not exhaustive; there packages and opening them up for
could be many other types of extra charge inspection, only to find that the contents are
depending on the circumstances. What completely sound. A Sorting Charges Clause
should be apparent from this list is that all the added to the policy would enable such
charges shown: charges to be recovered from underwriters.
■ Are incurred solely because the cargo has Labels Clause
suffered damage.
Such a clause will deal with the cost of
removing damaged labels and applying new
labels where the only damage is to the labels
 59

and not to the cargo itself. An example might

be where the labels on bottles of beer are
wet-damaged but the bottles – and the beer
inside – are completely unaffected.

Brands Clause

Branded goods are those bearing the name

of a well-known manufacturer or producer,
such as Nescafé or Coca-Cola. Problems are
often encountered when dealing with claims
on branded goods as the brand owners will
want to protect their reputation. They may, for
example, refuse to allow partially damaged
goods to be sold, even though they still have
significant value. Policies on branded goods
will nearly always contain additional clauses
setting out how different claims situations will
be dealt with. Some of these additional
clauses are likely to relate to the treatment of
extra charges, and the claims adjuster needs
to examine the policy and identify them.

Debris Removal Clause

The cost of disposing of worthless cargo or

other debris resulting from cargo damage is
not usually recoverable from underwriters.
Some policies will contain a Debris Removal
Clause which will specifically provide for
disposal costs to be recoverable in certain
circumstances.

The above list is not exhaustive. The claims

adjuster needs to examine the policy carefully
in each case and identify any special clauses
which have a bearing on how the claim and
any associated charges are to be dealt with.

6.7. Costs of proving claim

Although strictly not extra charges, there is
an established custom for underwriters to pay
the costs of proving claim, these being:

■ Surveyors’ fees.

■ Cost of segregating damaged from sound

cargo for the purposes of enabling the survey
to take place.

■ Adjusters’ fees.
Chapter 7
Practical Claims Adjustment

Classification: Confidential
 61

Contents
7.1. Introduction 62
7.2. Presentation of the Statement of Claim (the adjustment) 62
 62

7.1. Introduction Start with relevant information about the

cargo and the insurance conditions:
In this chapter we will look at practical claim
adjustments, how calculations should be Interest insured
done and how a good adjustment is laid out
for presentation to insurers. This is a summary of the cargo that is the
subject of the insurance, and will include, as
7.2. Presentation of the Statement of appropriate:
Claim (the adjustment)
■ The number of packages or units, weight
Any claim adjusted and presented to or volume of the cargo.
underwriters for consideration needs to be
set out in a clear and logical order. The style ■ A description of the cargo.
and content of the adjustment will obviously
depend on the requirements of the principal ■ The invoice value.
and the nature of the claim. There will be ■ Any other relevant details needed to
circumstances where the surveyor is required accurately describe the cargo.
to show an adjustment of the claim within the
body of the survey report, and much of the It should then show:
relevant detail will already be shown in the
report. Where the adjuster is presenting the Conditions of insurance
calculation of claim as a separate document
(or adjustment), the adjuster is likely to have This will include:
their own style but there are certain rules that
■ The basic insurance clauses (e.g. Institute
should always be followed.
Cargo Clauses (A) 1/1/09) – always
Documentation remember to reference the date of the
clauses as well.
The underwriter will often trust the adjuster to
have carried out a full examination of all the ■ Any other special clauses that have been
relevant documents and will not always wish, added to the policy and which are relevant to
or have the time, to examine all the the claim, such as warranties, brands
documents personally. The adjustment clauses, etc.
should therefore contain a signed declaration
by the adjuster that there has been sight of all ■ The insured transit as described in the
relevant documents in connection with the policy, including the name of the vessel or
claim. In circumstances where the adjuster vessels.
has not been able to sight a particular ■ The insured value.
document, or is reliant on information that
has been received verbally, there should be ■ The deductible or excess.
an appropriate note explaining that so that
the insurer can decide as to whether to see Then move on to the presentation of the
any additional documents. Statement of Claim (the adjustment):

Suggested layout Relevant facts and adjuster’s notes

Although you might expect that the Sufficient detail needs to be shown so that all
underwriter will know all about the matter, it is the relevant facts are at the underwriter’s
always a good idea to make clear in the disposal. What is stated will obviously
adjustment presented the details of the cargo depend on the circumstances of the loss, but
that is the subject of the document, to ensure the summary is likely to include some or all of
everyone is completely clear what is being the following, as relevant:
discussed. There is no absolute requirement
for the document to take any particular form, ■ Specific details of the carriage throughout
but what is shown below is the recommended the insured transit (e.g. by road from the
order of information for logic and clarity. shipper’s premises at named place, by vessel
 63

from named port to named port, by barge to

named final inland destination, etc).

■ Relevant dates in connection with the

transit (eg when voyage commenced, when
vessel sailed, etc).

■ Any other relevant dates in connection with

the loss.

■ When and where the loss happened.

■ The circumstances in which the loss

happened.

■ The extent of the loss.

■ What steps were taken to deal with and/or

minimise the loss.

■ Whether the carriers or any other third

parties have been held liable.

■ Why the adjuster considers the claim to be

covered by the policy.

■ Any other details or issues the adjuster

considers relevant to the claim.

Calculation of the claim

A detailed calculation of the claim, calculated

in accordance with correct principles of
indemnity and showing all the calculations
used (see chapter 6). The adjuster should
always add specific notes to explain
particular allowances (or disallowances) to
allow the underwriters to see exactly why
things might have been included or not.

Extra charges

Details of all the charges being claimed by

the Assured, showing which are allowed as
part of the claim and which disallowed.

An example of a typical adjustment layout

follows. The figures have been rounded to
whole numbers for convenience.
 64

Example

ADJUSTMENT OF CLAIM
on: 1,000 bags of Synthetic Jibble Pellets carried on the M/V ‘SISI ESPI 3’
INTEREST INSURED

1,000 bags (2,000 kg) Synthetic Jibble Pellets in 1 x 20’ container – CIF Value USD22,725 (duty unpaid)
Shipped under B/L No.: ABC123 dated 3 September 2009 from Antwerp to Casablanca

CONDITIONS OF INSURANCE

Institute Cargo Clauses (B) (1/1/09) Insured Value USD25,000

Institute Theft, Pilferage and Non-Delivery clause (1/12/82)
All claims subject to a deductible of USD1,500

RELEVANT FACTS AND ADJUSTER’S NOTES

On 4 September 2009, the M/V ‘SISI ESPI 3’ was in collision with the M/V ‘BOY RACER’ in the Bay of Biscay. The
‘SISI ESPI 3’ was holed below the water line but managed to make her way to Brest, a port of refuge. All cargo
from the affected hold was discharged at Brest, including the container carrying the subject cargo. On survey it
was found that all 1,000 bags were thoroughly soaked by water, the container having been fully submerged
under the water that entered the hold. It was agreed with the consignees that the cargo was no longer fit for
its intended purpose (stuffing children’s toys) but might still have an outlet for other uses. The cargo was
accordingly offered for sale by tender and was sold on 30 September 2019 for gross proceeds of sale of
EUR7,500 with sale charges of EUR225.

In our opinion, this loss is covered by Institute Cargo Clauses (B) as a loss reasonably attributable to collision
vessel, craft or conveyance with any external object other than water (1.1.4) or caused by entry of sea, lake
into vessel, craft, hold, conveyance, container, liftvan or place of storage (1.2.3).

We confirm that we have sighted the originals of all documents customarily submitted in support of a claim of
this nature.

CALCULATION OF CLAIM
1,000 bags Synthetic Jibble Pellets – insured value USD25,000.00

Deduct: Net proceeds of sale which are:

Gross proceeds of sale EUR7,500.00

Less: sale charges EUR225.00

EUR7,275.00

(Exchanged at EUR1.443299 to USD1.00) USD10,500.00

USD14,500.00

EXTRA CHARGES

Surveyor’s fees and expenses. (This amount has already been paid by the
USD475.00
claimants)

USD14,975.00
Less Policy deductible USD1,500.00
TOTAL CLAIM ON THE POLICY USD13,475.00
 65

This adjustment example is a concise There are several points to

document. It contains all the information the note in the way the claim has
underwriter needs to make a decision on been adjusted:
whether to pay the claim and how much to
pay, without having to go through the 1 Because the cargo has
documents personally if there is not the time been sold short of destination,
or inclination to do so. the claim has to be adjusted
on a ‘salvage loss’ basis (see
chapter 5.3).

2 Unless the underwriter

requires otherwise, the claim is
usually calculated in the
currency of the policy.

3 If proceeds of sale are in a

different currency to that of the
policy or adjustment, the
exchange rate used must be
that pertaining on the date of
sale.

4 The final total should

represent the figure that the
underwriter has to pay to the
claimant. In this example,
because the claimant has
already paid the surveyor’s
fees, the fees should be
shown as part of the claim with
a note that they have already
been paid. Where the survey
has not been paid by the
claimant, the practice should
be to exclude it from the total
claim and show it as a
separate item with a note that
it has not been paid (e.g.
‘(Unpaid)’) alongside or
underneath. Similarly, if you
are including your adjustment
or settling fee, this can be
shown at the end of the
document. Quite often this is a
matter of individual style. What
is important is that the
underwriter knows exactly how
much is to be paid to the
claimant, how much to the
surveyor (if anything) and how
much to yourselves as
adjusters/claims settlers.
 66

Chapter 8
Recoveries
 67

Contents
8.1. Introduction 68
8.2. Who can make a recovery? 68
8.3. Subrogation 69
8.4. What the Assured should do on discovery of loss/damage 70
8.5. Pursuing the recovery 73
8.6. The Hague Rules 1924/ 73
8.7. Some rules relating to Bills of Lading 80
8.8. The Hamburg Rules 80
8.9. Comparison of limits 81
8.10. Some guidance on handling recovery actions against third parties 83
8.11. Claims against air carriers 86
8.12. Claims against road carriers 95
 68

8.1. Introduction to hold the carrier or other third party liable.

The surveyor, however, should confine their
Whenever a person or party suffers a loss report to facts and findings.
that is caused by the negligence or breach of
contract of another, the wronged person or Any opinions or potentially contentious
party will naturally look to receive comments which might be detrimental to the
compensation from the wrongdoer. prospects of recovery (or the prospects of
defending a recovery action if acting for a P&I
The situation is no different in cargo Club) are best dealt with in separate, non-
insurance. When cargo is lost or damaged disclosable correspondence to the principal.
through the fault of a third party, the owner of
the cargo has an initial choice to make which 8.2. Who can make a recovery?
is whether to claim on the insurance or to
make a claim on the wrongdoer. Depending Generally, it is a party who has a contractual
on the choice, either the owners, or the relationship with the wrongdoer or, where no
insurers after they have paid a claim, will direct contractual relationship exists, the
normally attempt to make a recovery [get party whose position has been financially
compensation] from the responsible third prejudiced by the negligent actions of the
party. wrongdoer. This will often be the receiver or
owner of the cargo. (The position changes
Lloyd’s Agents, when acting as cargo when underwriters have paid a claim under a
surveyors, are expected to understand the policy of insurance. This is dealt with in 8.2).
importance of ensuring that the prospects of
making an eventual recovery from a A common difficulty in cargo insurance is that
responsible third party are maximised by: many cargo Assureds show little interest in
any recovery action against third parties
■ checking that the consignee has held that when they expect to recover their losses
party liable in writing in a timely manner; under the policy of insurance.
■ properly investigating the cause and Remember what we said earlier
circumstances of the loss or damage and about the cargo interests
identifying third party fault where it is a cause, making that decision about
contributory cause or possible cause of that whether to claim on insurance
loss or damage, and; or claim from the carrier. For
many cargo insureds, the
■ accumulating as much evidence and
prospect of claiming from their
information as possible that will assist the
insurers is appealing because it
client’s prospects of making a successful
is so much easier.
recovery.
For this reason, Institute Cargo Clauses
When establishing the cause, nature and contain a Duty of Assured Clause which,
extent of the loss or damage at a survey, the among other things, places a positive duty
surveyor should bear in mind that the upon the Assured …
underwriter will also be interested in the
prospects for recovery (or the prospects for “… to ensure that all rights against carriers,
defending the claim if the principal is a P&I bailees or other third parties are properly
Club). preserved and exercised.”
Information is much more easily gathered at This clause is often supplemented by
the time of inspection and investigation additional wording added to the policy that
immediately following the loss than later, sets out more specifically what the
when the trail has ‘gone cold’. Lloyd’s underwriter expects the Assured to do, on
Standard Form of Survey Report does discovery of a loss, to preserve the position
prompt the surveyor for information likely to against third parties who were, or may have
be useful in any subsequent recovery action been, responsible for the loss.
as well as recording (in section 18 of the
Report) what actions the claimant has taken
 69

The form entitled Lodging a with whom there is no direct contractual

Claim Against a Third relationship are known as claims in tort.
Party/Invitation to Attend for There will be circumstances where claims
Joint Survey Guidance Notes, against the parties mentioned in the previous
is available for use by Lloyd’s paragraph arise in tort rather than under
Agents. It also provides contract.
information to a claimant on
what steps to take to preserve 8.3. Subrogation
rights against carriers and
As above, it is usually the Assured in the first
other third parties.
instance who is the party entitled to claim
In circumstances where the cargo owner is or against the third party wrongdoer. The
will be paid for their loss under the cargo situation changes as soon as the insurer
insurance policy, it is mostly for the pays a claim under the policy in respect of
underwriter’s benefit that recovery prospects the loss which is the subject of the claim
are preserved and investigated. A competent against the third party.
surveyor will appreciate this at the time of
conducting the survey and encourage the The passing to an insurer of the right to claim
Assured to attach proper importance to this compensation from a responsible third party
duty. is known as subrogation. The effects of
subrogation are that, on payment of a loss:
Where the Assured fails to perform this duty,
with the result that recovery prospects are a. the insurer legally acquires the same rights
lost or impaired, the underwriter is entitled to and remedies against other parties that the
reduce any claim under the cargo policy by Assured has in respect of the cargo for which
the amount estimated that might have been the loss was paid, but;
recovered had the Assured acted properly. b. in respect of a successful recovery, the
As far as claims against third parties arising insurer is entitled to keep only so much as
from breach of contract are concerned, these has been paid to the Assured, passing to the
will mostly be claims against a shipowner Assured any amount recovered in excess
arising under a Bill of Lading or charter party. thereof.
Such claims will, in many cases, be defended In respect of point b., where the Assured has
on the shipowner’s behalf by the Protection borne a policy deductible, or where the
and Indemnity Association (P&I Club) with underwriter receives a recovery that includes
which the ship is entered. Sometimes claims both insured and uninsured losses, it may be
for recovery will be pursued against other that the Assured is entitled to a proportionate
carriers such as road hauliers, railway share of the amount recovered, even where
companies or inland water carriers. the total amount recovered is less than the
Other contractual parties against whom it amount paid by the insurer under the policy.
might be necessary to take recovery action Additionally, where interest is included in the
could include freight forwarders, recovery, the Assured is entitled to receive all
warehousemen, port authorities, stevedores, interest accruing to the period prior to the
container owners and other parties with a date the insurer paid the claim. Thereafter,
contractual duty of care towards the cargo. the Assured is entitled to the proportion of the
There will be occasions when a cargo owner interest received which attaches to any
or insurer will seek compensation from a third deductible or other uninsured loss. It is
party who has no direct contractual doubtful whether these rules are consistently
relationship with the cargo or its owner. Two followed in practice.
common examples are the owners of a ship
which has collided with the ship on which the
cargo is being carried and owners of other
cargoes which have caused damage to the
subject cargo. Claims against a third party
 70

Any Lloyd’s Agent who has suffered loss or damage. At that time, it
undertakes a recovery on behalf is unlikely to be apparent where or how the
of an underwriter or other loss or damage occurred. It is a prudent
principal should pass to the measure to notify and hold liable not only the
principal the whole of the net carrier but any other third party who might
funds received and leave the possibly have caused or contributed to the
principal to determine whether loss. This should normally be done by the
there should be any sharing of cargo receiver.
the recovery with the Assured –
it is not a decision for the The form Lodging a Claim Against a Third
Lloyd’s Agent personally. Party/ Invitation to Attend for Joint Survey
Guidance Notes, where used by the Lloyd’s
On payment of the claim under the policy, it is Agent instructed to carry out survey on the
standard practice for the insurer to obtain a goods, contains the following advice to the
signed Subrogation Receipt from the claimant.
Assured. There is no standard form of
Subrogation Receipt, although all insurers’ “Important: Holding carriers/third parties liable
forms follow a similar pattern. The document
generally contains: The Assured/Claimant is usually required to
give notice of any loss or damage to the
■ Brief details of the cargo, the vessel, the Carriers, or other Bailees, immediately when
policy number and other salient information any loss or damage is apparent, or within
identifying the cargo and the loss being three days of delivery if the loss or damage
claimed for. was not apparent at the time of taking
delivery.”
■ An acknowledgement by the Assured of
having received from the insurer the stated The Notice of Loss/Damage template (see
amount as payment of the claim under the over), or one in similar form, is suitable for
cargo policy. notifying the carrier of the loss and holding
the carrier liable. It also invites the carrier to
■ An acknowledgement by the Assured that be represented at a joint survey of the goods.
the insurer has become entitled to the same The document can be tailored for use against
rights and remedies in the cargo as the other third parties as appropriate.
Assured.

■ An acknowledgement by the Assured that

the insurer is entitled to use the Assured’s
name in any action against third parties in
respect of the cargo and loss referred to in
the document.

The signed Subrogation Receipt is the

insurer’s evidence of having paid the claim
and thereby being legally entitled to pursue
the recovery. The third parties being claimed
against will invariably request sight of this
document before entering into any
negotiations with the insurer or the insurer’s
representative.

8.4. What the Assured should do on

discovery of loss/damage
As will be seen when looking at contracts of
carriage later in this chapter, there are certain
measures that a cargo receiver should take
immediately on discovering that their cargo
 71

Letter of Reserve

NOTICE OF LOSS/DAMAGE

Date:______________________________________________________________________________________________

To the Carrier(s) or their representatives at ____________________________________________________

Of the Vessel/Aircraft/Conveyance _____________________________________________________________

Goods:____________________________________________________________________________________________

Marks and Numbers: _____________________________________________________________________________

We inform you that, of the above goods deliverable to us ex the above Vessel / Aircraft /
Conveyance, the following were lost and/or missing and/or damaged: ________________________

___________________________________________________________________________________________________

___________________________________________________________________________________________________

___________________________________________________________________________________________________

We hereby hold the carrier responsible for this loss and/or damage.
Damaged goods will be surveyed on our behalf by the following Lloyd’s Agents: _____________

___________________________________________________________________________________________________

___________________________________________________________________________________________________

___________________________________________________________________________________________________

You are invited to attend the survey and should contact either ourselves or the above Lloyd’s
Agents as soon as possible for details of the date, time and place of survey.

Please acknowledge receipt of this notice.

Signed: ___________________________________________________________________________________________

Name: ____________________________________________________________________________________________

Name and Address of Claimant: _________________________________________________________________

 72

In some circumstances, there may be more ■ Other contract of carriage, if appropriate,

than one Bill of Lading for the same goods, a eg Air Waybill (master and house, where
‘master’ Bill of Lading and a ‘house’ Bill of issued) or CMR (consignment note).
Lading. There is a category of carrier often
referred to as a Non-Vessel Owning Common ■ Charter party (if applicable).
Carrier (NVOCC). Such a carrier is likely to
be a freight forwarder or cargo consolidator ■ Outturn receipts at each stage of delivery
who groups or consolidates a number of (including delivery notes and cargo damage
separate, small shipments into a single receipts, depending on the modes of
container unit for ease of shipment. The main transport).
carrier will issue to the NVOCC a master Bill ■ Tally sheets (where appropriate).
of Lading for one container of consolidated
cargo. The NVOCC will issue separate house ■ Insurance certificate.
bills to the numerous owners of the individual
cargoes grouped together in the container. ■ Notice of claim sent to the carrier or third
party.
Be alert to the fact that the
terms and conditions in a ■ Invitation sent to the carrier or other third
house bill might not be the party to attend a joint survey.
same as those in the master
bill, particularly on important ■ Any other correspondence exchanged with
things such as time bars. or received from the carrier or other third
party.
There will be some cases where the Assured
has a large deductible or other uninsured loss ■ (For bulk and liquid cargoes) draft survey
and will therefore retain interest in the or ullage reports at loading and discharge
progress of the recovery action. Some large ports.
corporations with their own legal departments
■ (For containerised cargoes) Equipment
may also choose to remain active in the
Interchange Receipt (EIR) or equivalent from
recovery process. Generally, however, the
loading and discharge ports plus evidence of
involvement of an Assured will not extend
security seal at each stage of transit.
beyond holding the carrier liable in the above
fashion. Thereafter, negotiation with the party In addition, the following documents may
being claimed against will be conducted by assist depending on circumstances:
the insurer or their representative following
payment of the claim under the insurance ■ Product specifications (in cases of
policy. contamination).
Even so, the surveyor can considerably ■ Sale contract.
improve the insurer’s prospects of eventually
obtaining a satisfactory recovery by ensuring Wherever possible, the documents should be
that the Assured produces and provides all originals, not photocopies. Many of these
relevant information for submission to the documents would be required in any event in
insurer with the survey report while the matter support of the claim under the insurance
is still fresh. Such documents and information policy. Armed from the start with the above
are likely to include: documents and information and the
surveyor’s report (containing a detailed
■ A breakdown of the amount being claimed. summary of the surveyor’s investigation and
findings as to cause and probable time/place
■ Commercial invoice. of damage), plus a signed subrogation
receipt (on payment of the claim under the
■ Packing list.
policy), the job of the insurer or their
■ Bill of Lading (both master and house, representative in negotiating with the third
where issued), including conditions on the party wrongdoer is made much easier.
reverse side.
 73

8.5. Pursuing the recovery others have ratified the Hague-Visby Rules
and some have given effect to the Hamburg
Some insurance companies have their own Rules. The rules that will normally apply –
dedicated recoveries departments. Many will and be provided for in the Bill of Lading or
outsource this work to outside agencies such other ocean carriage contract – are those
as legal firms or recoveries specialists. Many which have been ratified by the country from
Lloyd’s Agents undertake recovery actions for which the goods are shipped. A sound
their clients. Those Lloyd’s Agents that do understanding of all three sets of rules is
handle recovery actions need to have a essential for the successful handling of
sound knowledge not only of law and practice recovery actions.
in their local markets but also the main
provisions in contracts of carriage used 8.6. The Hague Rules 1924 / The
internationally.
Hague-Visby Rules 1968
Just about every Bill of Lading used Introduction
anywhere in the world will have detailed
terms and conditions on its reverse side. It is convenient here to deal with both sets of
These will invariably refer to the regime under rules together. The 1968 revisions dealt
which any claims against the carrier are to be mostly with issues of jurisdiction and other
dealt. The most common regimes are the areas in need of clarification. There are a set
Hague Rules (1924), the Hague-Visby Rules of Articles which deal, among other things,
(1968) and the Hamburg Rules (1978). Each with the following:
of these is a regime drafted at international
convention with the aim of creating uniform ■ The period of responsibility of the carrier.
rules to be used for setting out the carrier’s
rights and obligations. Governments around ■ The basis of the carrier’s liability.
the world then decide if they wish to ratify the
■ The limits of financial liability.
rules and give them legal effect in their
countries. ■ The carrier’s responsibility and their
The Hague Rules were first adopted in 1924 responsibility for subcontractors.
and were designed to prevent shipowners ■ The documentary requirements.
putting highly restrictive clauses into Bills of
Lading. Prior to the introduction of these ■ The consignor’s responsibilities.
rules, shipowners were generally able to
avoid liability for just about every type of loss ■ Special provisions concerning the carriage
or damage to cargo, making it virtually of dangerous goods.
impossible for a cargo owner or the insurer to
get compensation. These rules set the ■ Time limits for claims and limitation
pattern for subsequent regimes by clearly periods.
setting out, on the one hand, shipowners’
obligations to the cargo owner and, on the The key provisions regarding a carrier’s
other, those circumstances in which the responsibilities and rights viz. their
shipowner would be excused liability for loss relationship with the cargo owner are
or damage to the cargo. basically the same in both sets of rules.

The Hague-Visby Rules were formulated in When will the conventions apply?
1968 and were effectively an update of the Article X of the Hague-Visby Rules says:
previous rules. Many cargo interests around
the world still felt that both sets of rules were “The provisions of these Rules shall apply to
too heavily weighted in favour of the every Bill of Lading relating to the carriage of
shipowner. This led to creation of the goods between ports in two different States if:
Hamburg Rules, which were an attempt to
correct this perceived imbalance. (a) the Bill of Lading is issued in a
Contracting State, or
The situation today is that some countries
have preferred to stay with the Hague Rules,
 74

(b) the carriage is from a port in a Firstly, the obligation upon the carrier is to
Contracting State, or exercise due diligence (to make the ship
seaworthy, etc). In practice, this means that
(c) the contract contained in or evidenced by the carrier has to take all the measures that
the Bill of Lading provides that these Rules or any reasonable carrier would take to ensure
legislation of any State giving effect to them that the ship is both seaworthy and
are to govern the contract, whatever may be cargoworthy for the particular voyage and
the nationality of the ship, the carrier, the type of cargo contemplated. It is important to
shipper, the consignee, or any other understand that this is not an absolute
interested person.” obligation.
So there must be: Example
■ An international journey, and; Let us suppose that a vessel suffers a
breakdown as a result of a latent defect in the
■ Issuance of a Bill of Lading or other
machinery and that that breakdown somehow
document of title, and;
leads to damage to the cargo. The existence
■ Governing law of contract being state of the latent defect suggests that the vessel
which has ratified HV, or; was technically unseaworthy and likely to
break down. However, if that defect was not
■ Document issued in a country that has discoverable by any reasonable test, then the
ratified HV, or; vessel owner cannot be said to have failed to
exercise due diligence.
■ Voyage starting in a port in a country
which has ratified HV. Thus, to show that the carrier
has breached this condition,
Let us look at the carrier’s responsibilities the cargo claimant needs to
first. show both of the following:
Carrier’s responsibilities ■ that the ship was
The rules state under Article III (1) that: unseaworthy or unfit to carry
the cargo, and;
“The carrier shall be bound, before and at the
beginning of the voyage, to exercise due ■ there was something the
diligence to: shipowner could or should
have done to prevent that
(a) make the ship seaworthy; unseaworthiness or
uncargoworthiness but failed
(b) properly man, equip and supply the ship; to do so.
(c) make the holds, refrigerating and cool
chambers, and all other parts of the ship in Proving one but not the other
which the goods are carried, fit and safe for is not enough. It is up to the
their reception, carriage and preservation.” party who is alleging
unseaworthiness (normally the
and under Article III (2) that:
cargo receiver) to prove it.
“Subject to the provisions of Article IV [which The above duty to exercise due diligence
is dealt with below], the carrier shall properly applies before and at the beginning of the
and carefully load, handle, stow, carry, keep, voyage. This means (in English law, at least)
care for and discharge the goods carried.” from the moment the carrier starts to load the
The provisions of Rule 1(a), (b) and (c) and cargo until the ship departs from the berth for
Rule 2 are clear and need no further the purposes of sailing on the voyage.
examination. It is the words that precede
them that are important.
 75

A cargo claimant has to show some point during the ocean voyage which
both that: has nothing to do with unseaworthiness.

■ The carrier failed to exercise When that happens, prima facie the
due diligence to provide a shipowner will be liable for the damage and
seaworthy and cargoworthy will be able to avoid the claim only if it can be
ship, and; shown that one of the following exceptions
operated to bring about the loss.
■ The damage to the cargo
The exceptions (Article IV (2))
which is the subject of the claim
was caused by that “Neither the carrier nor the ship shall be
unseaworthiness or responsible for loss or damage arising or
uncargoworthiness. resulting from:
There are other responsibilities relating to (a) act, neglect, or default of the master,
Bills of Lading which are dealt with later in mariner, pilot or the servants of the carrier in
this chapter. It is more appropriate at this the navigation or in the management of the
stage to look at the rights and immunities that ship;”.
the carrier enjoys.
Cargo interests generally find this exception
Rights and immunities unfair. The master and crew are employees
These are dealt with in Article IV of the rules. of the carrier and therefore working under the
Rule 1 is a positive statement that the carrier control and direction of the carrier. However,
will not be liable for loss or damage arising or if by their negligent act they cause loss or
resulting from unseaworthiness unless that damage to the cargo while navigating or
unseaworthiness has been caused by a want managing the ship, the carrier does not have
of due diligence to do the things that are set to pay compensation to the cargo owner. This
out in (a), (b) and (c) of Article III Rule 1 exception extends to pilots who might be
guiding a ship into or out of port and other
above.
servants of the carrier.
So if the vessel was
unseaworthy and that caused
damage but the carrier can
show that they exercised due
diligence to make the ship
seaworthy, they will still be able
to rely on the defences in the
rules and may therefore not be
liable for the damage.
As was stated above, the onus of proving that
the vessel was unseaworthy lies with the
party alleging it. However, once it is shown
that loss or damage did result from
unseaworthiness, the burden then shifts to
the carrier to prove that due diligence was
exercised. Although this order of having to
prove things is important, in practice, once a
‘prima facie’ case has been made against the
carrier, there is little option but to start
defending it.

Obviously, not all types of loss or damage to

the cargo are caused by unseaworthiness.
Loss or damage to the cargo might occur at
 76

It is very important to (c) perils, dangers and accidents of the sea

understand the limitation of the or other navigable waters;
term ‘management of the ship’
and the distinction between (d) act of God; (e) act of war;
managing the ship and caring
(f) act of public enemies;
for the cargo.
(g) arrest or restraint of princes, rulers or
Several decisions made in the people, or seizure under legal process;
English courts will help in this
respect. (h) quarantine restrictions;

■ In one case, the carrier failed (i) act or omission of the shipper or owner
to keep the hatches properly of the goods, his agent or representative;
covered with tarpaulins while the
ship was being repaired with (j) strikes or lockouts or stoppage or
cargo on board. Rain entered restraint of labour from whatever cause,
the holds and damaged the whether partial or general;
cargo. The carrier was not (k) riots and civil commotions;
entitled to rely on the above
exception; covering the hatches (l) saving or attempting to save life at sea;
was not an act of managing the
ship but of caring for the cargo. (m) wastage in bulk or weight or any other
loss or damage arising from inherent defect,
■ In another case, quality or vice of the goods;
mismanagement of refrigerating
machinery by the crew led to (n) insufficiency of packing;
damage to the cargo. As the
sole purpose of the refrigeration (o) insufficiency or inadequacy of marks;
machinery was to keep the (p) latent defects not discoverable by due
cargo cool, its mismanagement diligence;
was a failure to care for the
cargo, not an act of (q) any other cause arising without the actual
mismanaging the ship. fault or privity of the carrier, or without the
fault or neglect of the agents or servants of
On the other hand, a breakdown of the ship’s
the carrier, but the burden of proof shall be
engines caused by the negligence of the
on the person claiming the benefit of this
chief engineer or the ship running aground or
exception to show that neither the actual fault
colliding with another ship as a result of a
or privity of the carrier nor the fault or neglect
lapse of concentration on the bridge would
of the agents or servants of the carrier
both be classed as negligence in the
contributed to the loss or damage.”
‘navigation or management of the ship’.
The most commonly used defences in
The carrier would then be excused liability for
practice are negligence in navigation or
any damage to the cargo that might result
management of the ship, fire, perils of the
(unless the claimant could prove that the
seas and inherent vice.
carrier had failed to exercise due diligence to
make the ship seaworthy at the start of the
voyage and that the unseaworthiness was
the cause of the engine breakdown,
grounding or collision).

The remaining exceptions are largely self-

explanatory:

"(b) fire, unless caused by the actual fault or

privity of the carrier;
 77

Perils of the seas requires To end this section it is necessary, because

particular comment. A peril of of its importance, to emphasise the
the sea is generally considered relationship between Article III (1) (the duty to
to cover fortuitous accidents or exercise due diligence to make the ship
casualties peculiar to seaworthy, etc) and the exceptions in Article
transportation on the sea such VI (2).
as stranding, sinking, collision
of the vessel, striking a The carrier cannot rely on any of the
submerged object or exceptions where the loss or damage is
encountering heavy weather or shown to have been caused by a lack of due
other unusual forces of nature. diligence to make the ship seaworthy before
But the term should not be and at the beginning of the voyage.
interpreted too liberally. If, for
The following example shows the distinction:
example, waves wash across
the ship in very heavy seas and Example
enter through the hatch covers,
the carrier would not be able to A ship runs aground on rocks that are clearly
rely on a defence of perils of the shown on navigational charts. Cargo suffers
seas if the reason the water loss or damage as a result.
entered the hatches was that
they had defective seals. ■ If the ship had sailed without having the
correct charts on board, then there was a
Similarly, a shift of cargo in the lack of due diligence to make the ship
hold in heavy seas might not be seaworthy at the commencement of the
a peril of the sea if the cargo voyage. The carrier will be liable for the cargo
had not been properly stowed damage and will not be able to rely on the
or secured in the first place. exception of ‘negligence in navigation’.

A difficulty for any recovery ■ If the ship had sailed properly prepared
agent is that courts in different and fully seaworthy and the grounding was
countries will interpret the term due to a mistake on the bridge then the
in their own way and what might carrier would be able to rely on the defence
be a perils of the seas defence of ‘negligence in navigation’.
in one country might not be a
Package limitation
defence available to the
shipowner in another. It has always been considered commercially
The exception in (q) seems, on the face of it, desirable to allow shipowners to limit their
to give the carrier a defence against pretty liability for claims (except in extreme
much anything else that is not included in (a) circumstances). Were shipowners to face
to (p). However, the burden of proof remains completely open-ended liability, most would
firmly on the carrier to show that the loss or find it commercially impossible to trade. The
damage was not their fault. Thus, if cargo Hague and the Hague-Visby Rules embody
was presumed to have been sound when this principle in two ways: by providing for a
loaded to the ship by reason of a clean Bill of maximum amount the carrier will have to pay
Lading having been issued but was found to for loss or damage, and by providing for a
be damaged at the time of discharge and time limit in which claims have to be brought
there are no clues whatsoever as to how the and settled. This section deals with monetary
damage occurred, then the defence in (q) limitation, time limits being dealt with in 8.5.6.
would be of no help to the carrier; they would The situation is slightly complicated in that
be liable. some countries have, by domestic legislation,
set different limits of liability than those
Always remember that the
provided for by the rules themselves. When
burden of proof applies if the
the Hague Rules were formulated in 1924,
carrier wants to rely on the (q)
British shipowners were the dominant force in
defence.
 78

world shipping. This was reflected by setting Lloyd’s Agent handling a recovery action
the maximum amount a carrier would have to where limitation of liability is an issue should
pay, when liable, for any single lost or be sure to identify the rules that will apply in
damaged package or unit to £100 Sterling. that particular case.
To complicate matters, those rules provided
for this amount to be taken as the gold value Breaking limitation
and also allowed other countries to use their
own monetary systems. The right for the carrier to limit liability is not
unbreakable. The Hague-Visby Rules say:
What do you think about
“Neither the carrier nor the ship shall be
containers? When the Hague-
entitled to the benefit of the limitation of
Visby Rules came out,
liability provided for in this paragraph if it is
containerisation was relatively
proved that the damage resulted from an act
new and probably not really
or omission of the carrier done with intent to
considered in relation to the
cause damage, or recklessly and with
wording of the rules. Do you
knowledge that damage would probably
think that the term ‘unit or
result.”
package’ used in the Hague or
Hague-Visby Rules should However, it is not easy to prove that the
relate to the container or the carrier intended to cause damage or was
items inside the container? reckless (i.e. could not care less), knowing
that damage would probably result, so the
Modern Bills of Lading often right to limit is likely to be broken only in the
state ‘One container STC (Said most extreme circumstances.
To Contain) 100 cases’ as a
means of trying to widen out the Limitation on time
package limitation to each
case, not the single container. If loss or damage is apparent before or at the
time of the cargo owner taking custody of the
The Hague-Visby Rules take a different goods, the owner should immediately notify
approach and refer to Special Drawing Rights the carrier or the carrier’s agent in writing.
(SDRs). The SDR is a unit of account set by (This would not be necessary if the goods
the International Monetary Fund and might be have been the subject of a joint inspection at
thought of as a fictional currency with a the time of taking custody with the carrier’s
variable exchange rate calculated against a representative being present.)
basket of the world’s main currencies. The
IMF fixes daily the value of one SDR in terms If loss or damage is not apparent at the time
of the US Dollar. This value, or notional the consignee takes delivery of the goods,
exchange rate, can normally be found on the the consignee should, if possible, give notice
financial pages of the media or on a rate of of the loss or damage to the carrier or their
exchange website such as XE.com, where agent within three days of taking delivery and
you will find it under its ISO code of XDR. invite the carrier to send a representative to a
joint survey of the goods.
The Hague-Visby Rules entitle the carrier to
limit liability for loss or damage to cargo to It is not fatal to the cargo owner’s claim if
two SDRs per kilo of lost/damaged goods or such notice is not given within three days.
666.67 SDRs per package, whichever is the However, failure to do so does weaken the
greater. This necessitates two calculations, claimant’s case. Acceptance of the cargo
one on a package basis and one on a weight without comment provides the shipowner with
basis, to ascertain the higher figure to be a prima facie case that the goods must have
used for limitation purposes. been sound at the time of delivery. If some
time passes before any notice of claim is
As mentioned above, many states that have made on the shipowner, they are entitled to
ratified the Hague or Hague-Visby Rules take the view that, since the claimant
have enacted their own legislation varying the remained silent for a time, there is a strong
provisions regarding limitation of liability. Any presumption that the damage probably wasn’t
 79

there at all at the time of delivery. Late on their behalf, are nearly always willing to
notification of damage simply makes the agree at least one extension of time, usually
claimant’s case that much harder to prove. for three or six months.

Notify in three days and invite to 2 If a voluntary extension of time is not

a joint survey – if not done, then obtained, the usual recourse open to the
carrier will force cargo owner to claimant to prevent their claim from becoming
prove that the goods were time barred is to commence legal
damaged as the assumption will proceedings – (some contracts of carriage or
then be that they were sound on jurisdictions may provide for an arbitration
arrival. process at this stage).

The other limitation on time is an extremely Do not always assume that an

important one. Under Hague and Hague- extension is a perfect answer,
Visby Rules: as there are a number of
common legal issues to
“… the carrier and the ship shall in any event consider.
be discharged from all liability whatsoever in
respect of the goods, unless suit is brought Voluntary time extensions are
within one year of their delivery or of the date not recognised in all
when they should have been delivered.” jurisdictions, so are effectively
meaningless.
This time limit, or time bar as it is more
commonly referred to, is strictly enforced.
The wording of some
The cargo claimant needs to have achieved a
agreements to extend time can
settlement or resolved the claim with the
be complex and carry
carrier within 12 months of the date the
conditions and may raise
goods were delivered (or should have been
potential ‘title to sue’ issues.
delivered, if they were missing).

If not, the carrier is then excused all liability Extensions must be obtained
for the loss even if they were at fault. from the correct parties, and if
the chain is unclear, obtained
The conditions in a house Bill of from more than one party to
Lading might differ from those in ensure the position is
the master Bill of Lading and protected.
may provide for an earlier time
Key points to consider in relation to time
bar, something the recovery
extensions are:
agent should always be alert to.
Note also that the time bar in a ■ The general rule is that the party seeking
claim ‘in tort’, i.e. not under the an extension must be a party to the Bill of
contract of carriage, will be Lading (or lawful holder of same) or have the
subject to the laws of the right to act for that party. It is at this point that
particular jurisdiction. In the UK the effectiveness of any subrogation form or
this would generally be six assignment of claim is likely to be tested.
years.
■ Identifying the true carrier is not always
There are many claims where it is not straightforward where the Bill of Lading issuer
possible to agree a settlement within this is someone other than the shipowner and the
one-year period. What can the claimant do to vessel is under charter. A voluntary extension
protect their position? Basically, one of two of time obtained from the wrong party is
things: worthless. If there are several parties
1 They can ask the carrier to voluntarily (shipowner, NVOCC, other freight forwarder,
postpone the right to time bar the claim and charterer, sub-charterer, slot charterer, etc)
agree to extend the negotiating period and it is not clear from the evidence or
beyond one year. Carriers, or their P&I Clubs contract which of these is the true contractual
 80

‘carrier’, it is often necessary to seek an ■ The leading marks as shown on the goods
extension of time from each of them. or their packing.

■ A time extension and the wording or ■ Either the number of packages or pieces,
conditions of same can always be negotiated. or the quantity or weight.
The claimant or recovery agent should not be
pressured into accepting a time extension The apparent order and condition of the
(and then later rely on it) if they are unsure of goods at the time of receipt by the carrier.
or unhappy with the terms of the extension. The above will be based on the information
Time extensions are ‘offered’ and do not provided in writing by the shipper of the
have to be accepted. The purpose of the goods, although the carrier is not bound to
voluntary extension is to avoid the need to put anything in the Bill of Lading if its
start expensive legal proceedings, especially accuracy is doubted and there are no means
in circumstances where both parties feel an of verifying it.
amicable settlement is possible but need just
a little more time to get there. The extension b. The Bill of Lading is prima facie evidence
is therefore beneficial to both sides and that the carrier has received the goods
should be negotiated accordingly. exactly as described. The carrier can,
subsequent to issuing the Bill of Lading,
If you do not accept a time challenge its accuracy if they become aware
extension because you are of some inaccuracy that was not apparent at
unhappy with the the time of issuing it.
terms/conditions of the
extension, then seek legal However, the carrier cannot
advice and ensure that challenge its accuracy after it
proceedings are issued in good has been transferred to a third
time to prevent the claim party acting in good faith. This
becoming time barred. is extremely important as often
Obviously, any action taken in the case of a recovery it is a
must be with the principal’s consignee to whom the bill has
authority. been transferred that might be
making the claim (or in whose
There is a chart in 8.8 which compares the name the insurers are).
time limits/notification periods and limits of
liability provided for in the three main carriage Sometimes the shipowner or other carrier is
of goods by sea liability regimes. reluctant to clause a Bill of Lading as it may
lead to objections from a bank that has
It is the responsibility of the person issued a letter of credit on behalf of the
conducting the recovery action to ensure that shipper. In such circumstances, the carrier
they are fully aware of which time and liability might clause the Mate’s Receipts only in
limits apply, including any variations thereto exchange for a letter of indemnity from the
by reason of local or other applicable law or shipper.
regulation.
8.8. The Hamburg Rules
8.7. Some rules relating to Bills of Whereas the Hague and the Hague-Visby
Lading Rules were conventions formulated by the
The following summarises the provisions in Comité Maritime International (CMI), the
the Hague and the Hague-Visby Rules Hamburg Rules were created by the United
relating to Bills of Lading. Nations. This was largely as a result of
pressure from cargo interests and smaller
a. Once the carrier or their agent has taken trading nations which felt that the existing
custody of the goods, they must, if the regimes were weighted in favour of carriers.
shipper demands it, issue a Bill of Lading for
the goods. This has to show: The intention of the Hamburg Rules was to:
 81

“... strike a fairer balance between carriers 8.9. Comparison of limits

and shippers in the allocation of risks, rights
and obligations with regard to liability. They The chart below shows the time-bar periods,
shift the balance of liability slightly from the notification periods and limits of liability for
shipper to the carrier, but without radically each of the three carriage of goods by sea
changing the established liability system.” regimes referred to above. Note that under
the Hamburg Rules, the time bar becomes
In fact they take a radically different approach effective after two years, and not one as
by making the carrier automatically liable for under the Hague and the Hague-Visby Rules.
any loss or damage unless the carrier can
prove not to have been at fault. This is
expressed in the rules as follows:

“The carrier is liable for loss resulting from

loss of or damage to the goods, as well as
from delay in delivery, if the occurrence which
caused the loss, damage or delay took place
while the goods were in his charge as defined
in article 4, unless the carrier proves that he,
his servants or agents took all measures that
could reasonably be required to avoid the
occurrence and its consequences.”

There are other provisions

relating to delay, fire and live
animals which you should
familiarise yourself with as
they are different to the Hague
or the Hague-Visby Rules.

1 Live animals come within

the definition of goods under
the Hamburg Rules, but do not
under the Hague-Visby Rules.

2 Carrier is liable under the

Hamburg Rules for delay in
delivery, if what caused the
delay took place while the
goods were in their charge,
unless they can prove to have
taken all reasonable measures
to avoid the occurrence.

3 Carrier is liable under

Hamburg for loss/ damage or
delay caused by fire if claimant
proves that fire arose from
fault or neglect on the part of
the carrier, their servants or
agents.
The Hamburg Rules have not found favour
with major exporting and shipowning nations
and are thus encountered only infrequently in
practice.
 82

Type of claim Time bar Notification period Limit of liability

Hague Rules
Loss One (1) year from Within three (3) days, £100 per package or
date of delivery or but at time of delivery unit. This limit can
when goods should if apparent. vary from country to
have been delivered. country.
Damage As above As above As above
Additional Information A higher limit can be
set by agreement.

Hague-Visby Rules
Loss One (1) year from Within three (3) days, 2 SDRs per kg or
date of delivery or but at time of delivery 666.67 SDRs per
when goods should if apparent. package / unit,
have been delivered. whichever is the
higher.
Damage As above As above As above
Additional Information A higher limit can be
set by agreement.

Hamburg Rules
Loss Two (2) years from Within 15 days, but 2.5 SDRs per kg or
date of delivery or the next working day 835 SDRs per
when goods should if apparent. package / unit,
have been delivered. whichever is the
higher.
Damage As above As above As above
Delay As above Within 60 days As above
 83

8.10. Some guidance on handling It is important to check the Bill of Lading

recovery actions against third (whether it is a master Bill of Lading or a
house Bill of Lading issued by a freight
parties
forwarder or consolidator) to establish when
A degree of perseverance is often required the contract for carriage and the contractual
before liability is admitted by the responsible carrier’s liability ends. These can vary greatly.
third party and it would be rare indeed for the
claimant to obtain an admission of liability as Sometimes the carrier’s responsibility ends
soon as a claim is lodged. Protracted as soon as cargo passes the ship’s rail. In
correspondence and production of evidence other cases, the contractual period is from
will often be required before opposing views container yard (CY) to container yard and
are accepted. The best recovery agents are sometimes it is right through to delivery at
persistent and tenacious as well as being consignee’s door. Where air and/or road
knowledgeable. They tend to have good carriage is involved, similar checks should be
detective skills and tactical awareness. made of the conditions in any applicable Air
Waybills, House Waybills and
The extent of the loss being claimed for will CMR/consignment notes.
often dictate the time, effort and expense
spent on the claim, and it may be that the It is often best to work backwards in order to
best that can be hoped for is a ‘nuisance’ determine which of the parties involved in the
offer by the party being claimed against just transport chain is liable. For instance, who
to dispense with the matter. The following was the party responsible for actual/physical
additional tips will prove useful to anyone delivery? This is normally the haulier
pursuing recovery actions. delivering the cargo to final destination.

Who to claim against and why Was there any clausing on the delivery
receipt or was it clean? Clausing, or
It is important to identify the correct party comments as to the condition of the goods, is
against whom to claim. This is particularly the a very useful guide as to where damage may
case with containerised goods where primary have happened. Any sensible carrier or
responsibility for the care of the goods might bailee taking over custody of goods will make
lie with any of the shipowner, the charterer or comments in the receipts to protect their own
slot charterer, or the freight forwarder or position if there are signs of damage at that
consolidator. It is useful to ask the following time.
questions at the start:
A claused receipt indicates that damage was
1 Who was the contractual carrier? present at that time and the recovery agent
will need to go back further in the chain to try
2 Who was the last carrier? to identify a time when the goods were known
to be sound or were accepted by a new
3 Were claused receipts issued?
carrier or bailee without comment.
4 Who has been held responsible?
Examination of other documents, such as
5 What does the evidence suggest? outturn reports and tally sheets, may also be
necessary to try to identify the place or time
Do not underestimate the where damage seems to have occurred and
value of using diagrams to try who had custody of the goods at that time. As
and visualise the links above, good recovery agents tend to have
between various parties. good detective skills.

Most recoveries will be pursued against the In the absence of clear information, a
contractual carrier who, under the contract of common tactic is to ‘accuse’ the biggest
carriage, may be responsible for the entire target (usually the ocean carrier as they are
voyage and therefore ultimately liable for any invariably backed by insurance with a P&I
damage/loss, even if caused by one of the Club) and put them to task to prove their
carrier’s sub-contractors. innocence. Their defence may either
implicate or eliminate them, the latter often
 84

providing additional clues as to where else Commencing legal proceedings

the damage might have occurred.
In many cases it may be necessary to
consider whether or not to bring legal
proceedings. Factors that may determine this
include the following:

■ The size of the claim being pursued.

■ The perceived strength of the case.

■ Difficulty in obtaining an admission of

liability from the party being claimed against.

■ The need to prevent the claim from

becoming time barred.

If legal action is to be pursued, the question

of jurisdiction can be important. Bringing a
claim against a third party in a local
jurisdiction may expose that party to higher
limits of liability than might be the case if the
action is pursued elsewhere. An astute
choice of jurisdiction may even deprive the
third party of the right to limit liability
altogether. In a large claim, the securing of a
higher limit might be the motivating factor in
commencing proceedings. Making a choice
on jurisdiction (or forum shopping) is
something that requires proper legal advice.
There is no value in trying to bring an action
in a court that has no jurisdiction over the
claim, and the time wasted might lead to the
loss of time bar against a more appropriate
defendant.

Whatever the circumstances,

legal action should never be
undertaken lightly as it is
invariably expensive (and
should never be commenced
without the prior approval of
the principal). It should also be
kept in mind that a court
(wherever the jurisdiction) will
only give a decision based on
the evidence available and the
‘balance of probabilities’ as to
where the loss or damage is
most likely to have occurred.
 85

Interest suggests that the damage occurred while the

cargo was in the custody of the road hauliers
The successful claimant is usually entitled, in who carried it from Livorno port to
addition to being compensated for their loss, consignee’s warehouse.
to interest thereon from the date the goods
were delivered (or should have been The consignees gave notice of claim to all
delivered) up to the time of settlement. The parties and invited them to a joint survey. A
availability and the rate of interest will usually silver nitrate test on a sample of damaged
depend on the jurisdiction in which any cargo was positive, indicating the presence of
dispute is being heard (or would be heard if chlorides, a very strong presumption that the
the matter was not resolved by negotiation). wetting was caused by seawater. By this
time, the vessel had already sailed from
Recovery claims Livorno and it was not possible for the cargo
insurer’s surveyor to inspect the ship’s hatch
Example one covers for signs of lack of watertight integrity.
Shipment = 2,000 mt of grain shipped on CIF A claim against the ocean carrier was initially
terms from Immingham to Livorno on the M/V declined on the basis that the claimant could
‘SISI ESPEE 3’. not prove a lack of due diligence to make the
The cargo was collected from the shipper’s ship seaworthy or cargoworthy. The carrier
warehouse and delivered to Immingham in also cited the clean receipt by the Port
Authority as evidence that the cargo was
trucks. It was loaded to the vessel by grab
crane operated by stevedores acting on sound at the time of discharge. The recovery
agent appointed by the cargo insurer
behalf of the ship. A clean Bill of Lading was
issued, providing prima facie evidence that undertook a little detective work and
the cargo was received by the owners of the established that another cargo of grain on
vessel in good order and condition. The board the same ship, and delivered at a
subsequent discharge port, had also suffered
vessel departed and nothing abnormal was
damage by water that showed the presence
noted to have occurred on the voyage,
although the vessel did encounter some of chlorides.
modestly heavy seas. The vessel arrived at For good measure, the recovery agent also
destination and discharged the cargo. The held the Port Authority and the road haulier
Port Authority issued a clean outturn report. liable on the basis that their failure to note
The road haulier collecting the cargo from any damage on their receipts suggested
Livorno issued a clean receipt. The parties either:
involved in the contractual chain were as
follows: a. they had received the cargo sound but
delivered it damaged, or;
1 The road haulier from shipper’s warehouse
to Immingham port. b. they had accepted the cargo damaged but
compromised the prospects of a successful
2 The stevedores who loaded the cargo to claim against the carrier by not noting the
the ship at Immingham. damage on the receipts.
3 The ocean carrier/shipowner. This prompted the Port Authority to advise
4 The stevedores who unloaded the cargo at that one of the stevedores had commented to
the ship’s crew at the time of unloading that
Livorno.
some of the cargo appeared to be a bit ‘off
5 The road haulier from Livorno to colour’ and the hatch covers looked ‘a bit
consignee’s warehouse. rusty’.

On delivery of the grain to the consignee’s By using a little tactical cunning and
warehouse, it was discovered that the cargo intelligence, the recovery agent turned a
had been affected by wetting. The fact that weak claim into a strong claim and could now
none of the documents recorded any adverse show that, on the balance of probabilities, the
comments as to condition of the cargo damage occurred while in the care and
 86

custody of the ocean carrier, probably as a 8.11. Claims against air carriers
result of ingress of seawater through faulty
hatch covers. Claims against air carriers for passenger or
airfreight claims have historically been dealt
Example two with under the Warsaw Convention. This
convention was drafted in the early part of the
Now let us change the circumstances a little. twentieth century when the aviation industry
As above, the cargo was collected from the was still in its infancy. The aim of the
shipper’s warehouse and delivered to convention was to establish uniformity in the
Immingham in trucks. It was loaded to the industry with regard to “the procedure for
vessel by grab crane operated by stevedores dealing with claims arising out of international
acting on behalf of the ship. A clean Bill of transportation and the substantive law
Lading was issued, providing prima facie applicable to such claims”. It also contained
evidence that the cargo was received by the provisions relating to documentation, such as
owners of the vessel in good order and tickets and waybills.
condition. The voyage conditions were the
same as above. At destination the Port The convention also sought to limit the
Authority issued a clean outturn report. The potential liability of air carriers in the event of
road haulier collected the cargo from Livorno accidents. This was considered necessary to
and delivered it in trucks to the consignee’s allow airlines to raise the capital needed to
warehouse. On arrival there, it was expand and to provide a definite basis upon
discovered that some of the grain was wet which their insurance rates could be
and the consignee claused the delivery calculated. The Warsaw Convention was
receipt to that effect. subsequently modified by the Hague
Amendments in 1955 and by the Montreal
The consignee gave notice of claim to both Protocol No. 4 in 1975. Some of these
the ocean carrier and the road haulage modifications relate to cargo claims and are
company and invited both to attend a joint thus of importance.
survey. A silver nitrate test gave a negative
result, indicating that the wetting was caused In November 2003, a new convention, the
by fresh water, not salt water. By checking Montreal Convention, came into force in
weather reports for the day that the trucks certain countries that had ratified it. This
carried the grain to the consignee’s convention, although similar to the Warsaw
warehouse, the recovery agent established Convention, was intended to replace it rather
that there was heavy rain in the area at that than amend it.
time. The consignee was able to produce
photographic evidence taken at the time of As with the various conventions that relate to
delivery that indicated there were holes in the carriage of goods by sea (dealt with above),
tarpaulins that had been used to cover the the situation is confused because different
trucks. Thus, there was strong evidence that states applied different versions of the
rainwater had leaked onto the cargo during Warsaw Convention (and a few states did not
the road transit as a result of the poor apply it at all). Many states now apply the
condition of the tarpaulins. A claim against Montreal Convention.
the road haulier succeeded. In the following text, we will refer to Warsaw
for the original 1929 Convention, Hague for
Both these examples
the 1955 amended Convention, MP4 for the
demonstrate the importance of
1975 amended Convention (there were also
obtaining good information at
Montreal Protocols 1, 2 and 3 but these never
the time the loss is first
came into force) and Montreal for the
discovered, and how
Montreal Convention.
prospects of recovery are
improved by a bit of ‘thinking All these conventions dealt substantially with
outside the box’. claims concerning passengers and luggage,
as well as cargo. The following text deals
only with those provisions concerning cargo.
 87

When the conventions apply ■ Places of departure and destination, plus

any stopping places en route.
The conventions will apply when:
■ Details of the shipper, the consignee and
1 The place where the flight begins and the the first carrier.
place where the flight ends are both in
countries that have adopted the convention. ■ The description, weight, volume or
dimensions, the quantity of the goods and the
2 As in 1, even where there is a break in the marks and numbers.
carriage or a transhipment at an intermediate
place. ■ The apparent condition of the goods or
packing.
3 As in 1, where the flight(s) begin and end
in the same country but the carriage was via If the carrier accepts the goods without an air
another country. consignment note, or if the air consignment
note does not contain all of the required detail
The circumstances where the as set out above, the carrier cannot rely on
conventions will not apply are any provisions in the contract which would
when either the place of exclude or limit their liability.
departure or the place of
destination are not in a country Hague requires the issue of an Air Waybill in
that applies the convention, or place of the air consignment note, and the
when the flight begins and ends waybill has to contain the following
in the same country and does information which is considerably less than
not go via another country (ie required under the Warsaw Convention:
there is no ‘international’
element to the voyage). ■ An indication of the places of departure
and destination.
Note that this is different to the
■ If the voyage starts and ends in a single
Hague-Visby Rules for sea
state but has one or more stopovers in
carriage, which do not require
another state, an indication of at least one
each end of the journey to be
stopping place.
convention countries.
■ A notice that, if the carriage involves an
Provided the voyage meets the ultimate destination or stopover in another
rules in either 1, 2 or 3, the country, the Warsaw Convention may apply
conventions will apply even and that, in most cases, the carrier’s liability
where the voyage is performed in respect of loss or damage to cargo may be
by several successive carriers. limited.
In such circumstances, the
voyage will be deemed to be a The carrier must sign this document before
single carriage within the loading the cargo on board the aircraft. If the
conventions. carrier loads the cargo to the aircraft without
having made out an Air Waybill, or if the Air
Consignment notes/Air Waybills Waybill does not contain the above
Under the original Warsaw Convention, the information, the carrier is not entitled to rely
carrier has the right to require the shipper to on the provisions regarding limitation of
provide an air consignment note. This must liability. If the shipper consents, the Air
be in three originals marked respectively For Waybill may be substituted by ‘any other
the Carrier and signed by the shipper, For the means which would preserve a record of the
Consignee and signed by the shipper, plus a carriage to be performed’.
copy For the Shipper personally which the MP4 and Montreal both require the issue of
carrier must sign and hand back to the an Air Waybill, in three originals, showing:
shipper after accepting the goods.
■ An indication of the places of departure
The air consignment note must show: and destination.
 88

■ If the voyage starts and ends in a single Defences available to the carrier
state but has one or more stopovers in
another state, an indication of at least one Under Warsaw, the air carrier is liable for loss
stopping place. or damage to the cargo if the occurrence
which caused the damage took place during
■ An indication of the weight of the the carriage by air. The carrier is also liable
consignment. for damage caused by delay. The term
‘carriage by air’ is deemed to include the
Under MP4 and Montreal, failure to comply period during which the goods are in the
with the provisions regarding Air Waybills custody of the carrier even when ashore,
does not deprive the carrier of the right to rely such as in an airport storage area, and the
on provisions regarding limitation of liability. convention will apply as soon as the goods
are taken through the airport entry gates,
terminating only when they pass through the
exit gates at the destination airport. These
provisions have been maintained in Hague,
MP4 and Montreal.

Under Warsaw, the carrier will be excused

liability if it can be proved both that:

1 The carrier and their agents have taken all

necessary measures to avoid the damage, or
that it was impossible for them to take such
measures.

2 The damage was occasioned by negligent

pilotage or negligence in the handling or
navigation of the aircraft and that, in all other
respects, the carrier and their agents have
taken all necessary measures to avoid the
damage.

Note that the burden is upon the carrier to

prove both the above things in order to avoid
liability. This is not an easy thing to do, so a
carrier under Warsaw finds it very difficult to
avoid liability for loss or damage to cargo.
Warsaw does recognise the concept of
contributory negligence, and if the claimant’s
negligence caused the loss or damage, the
carrier’s liability will be reduced or even
removed altogether. While this is perhaps
more obvious for personal injuries, it could
still apply to cargo related losses.

Under Hague, the defence of negligent

pilotage or negligent navigation was
removed.

MP4 and Montreal retained the Hague

amendments but introduced specific
defences for the carrier which would exclude
their liability in cases where the loss was
solely caused by one of the following:

1 Inherent defect, quality or vice of the cargo

 89

2 Defective packaging of the cargo (except With regard to the amounts to which the
where packed by the carrier directly) carrier can limit liability, these are as follows:

3 Act of war or armed conflict

4 Act of a public authority [eg customs

officials] with regard to the entry, transit or
exit of the cargo.

Limitation of liability

All versions of the conventions allow the

carrier to limit their liability for loss or damage
(in most circumstances), although the
provisions under each are different. The
differences are important.

Under Warsaw, if the loss or damage is

caused by the carrier’s wilful misconduct,
they will not be entitled to limit their liability for
that loss or damage, ie the right to limit can
be lost, as it can be with the sea conventions.

However, Hague dispensed with this

provision and introduced a new test, as
follows:

“The limits of liability ... shall not apply if it is

proved that the damage resulted from an act
or omission of the carrier, his servants or
agents, done with intent to cause damage or
recklessly and with knowledge that damage
would probably result; provided that, in the
case of such act or omission of a servant or
agent, it is also proved that he was acting
within the scope of his employment.”

This change is significant as it shifts the

burden of proof. The burden is no longer on
the carrier to prove their innocence: it is now
on the claimant to prove the carrier’s guilt if
the latter is to be deprived of the right to limit
liability. Proving an “… act or omission ... with
intent to cause damage ...”, etc is extremely
difficult and it is only in rare circumstances
that the claimant would be able to show this.

This process of improving the carrier’s

position was continued under MP4 in which
the carrier’s right to limit became
unbreakable, ie they cannot ever lose the
right to limit with the simple provision that “the
limits of liability may not be exceeded
whatever the circumstances which gave rise
to that liability”. The same provision appears
in Montreal.
 90

Warsaw and Hague: Under Warsaw, the claimant must make their
complaint immediately on discovery of the
250 French francs per kilogram of weight loss or damage or, in writing, within seven
(unless the shipper made a special days of receipt of the goods in the case of
declaration of value at the time of shipment loss or damage, or fourteen days from when
and paid a supplementary sum). This was the goods should have been delivered in the
deemed to be the gold value of the franc. case of delay.
Contracting states were free to quote an
equivalent amount in currency. Under Hague, MP4 and Montreal, these limits
in which to complain were extended to
In Hague, an additional provision was fourteen days (loss or damage) and twenty-
introduced making it clear that this limit was one days (delay).
to be applied only to the weight of the
package or packages affected and not to the In all cases, the claim will become time
weight of the whole consignment unless the barred two years from the date the aircraft
affected cargo formed an integral part of a arrived at destination, or ought to have
larger consignment under the same waybill arrived at destination or from the date the
and damage to part of it affected the value of carriage stopped.
the whole. This might be the case where, for
example, only a single component of a The following chart shows the key sections
machine is damaged but that damage and relevant provisions of each regime
renders the whole machine worthless. pertaining to liability in a form that enables
easy comparison between the different
Under MP4 and Montreal: versions of the conventions.

Air carriers may limit their liability to 17 SDRs

per kilogram of weight of the damaged item
being claimed for. As under Hague, if
damage to part of the cargo affects the value
of the remainder of the cargo carried under
the same waybill (even though that remainder
is itself undamaged), then the 17 SDRs per
kilogram will be applied to the weight of the
entire shipment under that waybill. Montreal
contained a provision allowing for a review of
the limit each five years to take account of
inflation. In 2004, the limit was revised to 19
SDRs per kilogram.

It should be noted here that, from 1 July

2010, the standard IATA Air Waybill
conditions were amended to increase the
limit of liability to 19 SDRs per kilogram in line
with the revised Montreal figure. As most of
the world’s air carriers are IATA members, it
the limit now applies to the vast majority of
cases.

Limitations on time

Under all versions of the conventions,

acceptance of the goods without complaint is
prima facie evidence that the carrier delivered
the goods in accordance with the document
of carriage.
91
 92

Art Warsaw Hague MP4 Montreal

18 The carrier is liable for The carrier is liable for The carrier is liable for The carrier is liable for
damage sustained in the damage sustained in the damage sustained in the damage sustained in the
event of the destruction or event of the destruction or event of the destruction or event of the destruction or
loss of, or of damage to, any loss of, or of damage to, any loss of, or damage to, cargo loss of, or damage to, cargo
registered luggage or any registered luggage or any upon condition only that the upon condition only that the
goods, if the occurrence goods, if the occurrence occurrence which caused occurrence which caused
which caused the damage which caused the damage the damage so sustained the damage so sustained
so sustained took place so sustained took place took place during the took place during the
during the carriage by air. during the carriage by air. carriage by air. However, carriage by air. However,
the carrier is not liable if he the carrier is not liable if he
proves that the destruction, proves that the destruction,
loss of, or damage to, the loss of, or damage to, the
cargo resulted solely from cargo resulted solely from
one of the following: one of the following:
a) inherent defect, quality or a) inherent defect, quality or
vice of that cargo; vice of that cargo;
b) defective packing of that b) defective packing of that
cargo performed by a cargo performed by a
person other than the carrier person other than the carrier
or his servants or agents; or his servants or agents;
c) an act of war or an armed c) an act of war or an armed
conflict; conflict;
d) an act of public authority d) an act of public authority
carried out in connection carried out in connection
with the entry, exit or transit with the entry, exit or transit
of the cargo. of the cargo.

19 The carrier is liable for The carrier is liable for The carrier is liable for The carrier is liable for
damage occasioned by damage occasioned by damage occasioned by damage occasioned by
delay in the carriage by air delay in the carriage by air delay in the carriage by air delay in the carriage by air
of passengers, luggage or of passengers, luggage or of passengers, luggage or of passengers, luggage or
goods. goods. goods. goods.

20 The carrier is not liable if he The carrier is not liable if he In the carriage of In the carriage of
proves that he and his proves that he and his passengers and baggage, passengers and baggage,
agents have taken all agents have taken all and in the case of damage and in the case of damage
necessary measures to necessary measures to occasioned by delay in the occasioned by delay in the
avoid the damage or that it avoid the damage or that it carriage of cargo, the carrier carriage of cargo, the carrier
was impossible for him or was impossible for him or shall not be liable if he shall not be liable if he
them to take such them to take such proves that he and his proves that he and his
measures. In the carriage of measures. servants and agents have servants and agents have
goods and luggage the taken all necessary taken all necessary
carrier is not liable if he measures to avoid the measures to avoid the
proves that the damage was damage or that it was damage or that it was
occasioned by negligent impossible for them to take impossible for them to take
pilotage or negligence in the such measures. such measures.
handling of the aircraft or in
navigation and that, in all
other respects, he and his
agents have taken all
necessary measures to
avoid the damage.
 93

22 In the carriage of registered In the carriage of registered In the carriage of cargo, the In the carriage of cargo, the
luggage and of goods, the luggage and of goods, the liability of the carrier is liability of the carrier is
liability of the carrier is liability of the carrier is limited to a sum of 17 limited to a sum of 17
limited to a sum of 250 limited to a sum of 250 Special Drawing Rights per Special Drawing Rights per
francs per kilogramme, francs per kilogramme, kilogramme, unless the kilogramme, unless the
unless the consignor has unless the passenger or consignor has made, at the consignor has made, at the
made, at the time when the consignor has made, at the time when the package was time when the package was
package was handed over time when the package was handed over to the carrier, a handed over to the carrier, a
to the carrier, a special handed over to the carrier, a special declaration of special declaration of
declaration of the value at special declaration of the interest in delivery at interest in delivery at
delivery and has paid a value at delivery and has destination and has paid a destination and has paid a
supplementary sum if the paid a supplementary sum if supplementary sum if the supplementary sum if the
case so requires. In that the case so requires. In that case so requires. In that case so requires. In that
case the carrier will be liable case the carrier will be liable case the carrier will be liable case the carrier will be liable
to pay a sum not exceeding to pay a sum not exceeding to pay a sum not exceeding to pay a sum not exceeding
the declared sum, unless he the declared sum, unless he the declared sum, unless he the declared sum, unless he
proves that that sum is proves that that sum is proves that that sum is proves that that sum is
greater than the actual value greater than the actual value greater than the consignor's greater than the consignor's
to the consignor at delivery. to the passenger’s or actual interest in delivery at actual interest in delivery at
consignor at delivery. destination. destination. (Increased to 19
SDRs in 2009.)

In the case of loss, damage In the case of loss, damage In the case of loss, damage
or delay of part of registered or delay of part of registered or delay of part of registered
baggage or cargo, or of any baggage or cargo, or of any baggage or cargo, or of any
object contained therein, the object contained therein, the object contained therein, the
weight to be taken into weight to be taken into weight to be taken into
consideration in determining consideration in determining consideration in determining
the amount to which the the amount to which the the amount to which the
carrier’s liability is limited carrier’s liability is limited carrier’s liability is limited
shall be only the total weight shall be only the total weight shall be only the total weight
of the package or packages of the package or packages of the package or packages
concerned. Nevertheless, concerned. Nevertheless, concerned. Nevertheless,
when the loss, damage or when the loss, damage or when the loss, damage or
delay of a part of the delay of a part of the delay of a part of the
registered baggage or registered baggage or registered baggage or
cargo, or of an object cargo, or of an object cargo, or of an object
contained therein, affects contained therein, affects contained therein, affects
the value of other packages the value of other packages the value of other packages
covered by the same covered by the same covered by the same
baggage check or the same baggage check or the same baggage check or the same
Air Waybill, the total weight Air Waybill, the total weight Air Waybill, the total weight
of such package or of such package or of such package or
packages shall also be packages shall also be packages shall also be
taken into consideration in taken into consideration in taken into consideration in
determining the limit of determining the limit of determining the limit of
liability. liability. liability.

25 The carrier shall not be The limits of liability Such limits of liability Such limits of liability
entitled to avail himself of specified in Article 22 shall constitute maximum limits constitute maximum limits
the provisions of this not apply if it is proved that and may not be exceeded and may not be exceeded
Convention which exclude the damage resulted from whatever the circumstances whatever the circumstances
or limit his liability, if the an act or omission of the which gave rise to the which gave rise to the
damage is caused by his carrier, his servants or liability. [Appears as part of liability. [Appears as part of
wilful misconduct or by such agents, done with intent to Article 24.] Article 24.]
default on his part as, in cause damage, or recklessly
accordance with the law of and with knowledge that
the Court seized of the case, damage would probably
is considered to be result; provided that, in the
equivalent to wilful case of such act or omission
misconduct. of a servant or agent, it is
also proved that he was
acting within the scope of
his employment.
 94

Position where there is more than one where one of the countries has ratified Hague
carrier but not previously Warsaw, or ratified MP4
but not previously Hague or Warsaw
The following applies in all cases: (because on ratifying Hague or MP4,
countries were automatically deemed to be
■ The shipper has a right of action against ratifying the preceding versions at the same
the first carrier. time).
■ The consignee has a right of action against c. Do both of them use Montreal?
the last carrier.
■ If both countries apply Montreal, then
■ Either may take action against the carrier
who performed the carriage during which the Montreal will be used.
loss or damage took place.
d. Does one use Montreal and the other
Which convention will apply? something else?
This is extremely complex but a structured ■ Look for the last version of the Warsaw
consideration of various questions will allow Convention (whether it was Warsaw, Hague
the correct answer to be identified. or MP4) that both countries applied that will
be used.
1 Identify the countries of departure and
destination. e. Does one use Montreal but never used
anything before?
2 Which conventions do they use, if any?
Warsaw, Hague, MP4, Montreal or nothing? ■ In these circumstances, if one of these
countries has ratified Montreal but never
a. If they both use the same one, and that is previously been a party to the Warsaw
either Warsaw, Hague or MP4, then use that Convention in any of its forms, then it follows
one, i.e.: that none of the conventions can apply and
■ If both apply MP4, then MP4 will be the the claim will be dealt with under the
version that is used for the claim. applicable local law.

■ If both apply Hague, then Hague will be In which country should the claim be
used. brought?

■ If both apply Warsaw, then Warsaw will All versions of the Warsaw Convention plus
used. the Montreal Convention have the same
provision regarding where claims can be
b. If they use different ones (but neither use brought. The claimant can bring in a claim
Montreal), choose the oldest common one, only in the territory of one of the contracting
i.e. states to the particular convention. This has
to be before the court having jurisdiction:
■ If one applies MP4 and the other applies
Hague, then Hague will be used. ■ where the carrier is ordinarily resident or
has their principal place of business, or;
■ If one applies MP4 and the other applies
Warsaw, then Warsaw will be used. ■ where the carrier has an establishment by
which the contract has been made, or;
■ If one applies Hague and the other applies
Warsaw, then Warsaw will be used. ■ before the court having jurisdiction at the
place of destination.
There is also some logic to this. Hague and
MP4 were simply the original Warsaw It is likely that the domestic laws of some
Convention with subsequent amendments. countries will vary this or interpret the
Where countries apply different versions of provisions in their own way. In any particular
the convention, it is the earlier one that will be case, this is something that might need to be
used to govern the claim. This will apply even checked with a local lawyer.
 95

A Lloyd’s Agent should never The text that follows deals only with the key
appoint lawyers or seek to points of the convention. Agents who
instigate legal action without regularly deal with CMR claims may need to
first receiving the express develop a fuller understanding of how they
authority and approval of their are applied in practice.
principal.
What is CMR?
Which countries apply which convention?
CMR is a contraction of the equivalent title in
It is the responsibility of the the French language (Convention relative au
Lloyd’s Agent handling a contrat de transport international de
recovery against an air carrier marchandises par route).
to establish which of the
CMR has been adopted by the majority of
conventions, or any
countries in Europe, plus several North
amendments in respect of the
Warsaw Convention, apply in African and Arabian countries and a few of
that particular case. The the former Soviet Union countries in Asia.
following website will provide an The convention applies to every contract for
up-to-date list of countries that reward for the carriage of goods by road in
apply any particular convention: vehicles from one country to another
provided that one of the countries involved in
www.icao.int the carriage has acceded to the convention.
8.12. Claims against road carriers Thus, if either the country of departure or the
Claims against road carriers are most likely to country of destination applies CMR, its rules
be dealt with under the laws of the land of the will apply.
carrier and the particular conditions of
The convention applies to goods but it does
carriage that apply. In Europe the situation is
not apply to any of:
different, as any road carriage that crosses
an international border will normally be ■ Funeral consignments.
subject to Convention on the Contract for the
International Carriage of Goods by Road ■ Furniture removals.
(CMR). The reason why CMR is prevalent in
Europe is that Europe is a relatively small ■ Postal carryings.
land mass but contains a large number of
countries. Cross-border road carriage is thus Where a carriage subject to CMR involves a
very common in Europe whereas it would not stage in the journey performed by another
be so common in, say, North America. means of transport, eg sea or rail, and the
goods are not unloaded from the road
Even so, Lloyd’s Agents around the world vehicle, CMR will apply to the whole transit.
who undertake recovery actions may still This would be the case where the lorry
need to have an understanding of CMR. crosses, say, the English Channel between
More than ten million teu of containers arrive the UK and France, or the Mediterranean
at the port of Rotterdam alone each year and Sea between Spain and Morocco, on a ro-ro
40% of these are on-carried by road, often vessel.
crossing borders en route to countries in the
interior of Europe.

The situation will be the same at other busy

European container ports such as Antwerp
and Hamburg. Thus a container going from,
say, Buenos Aires to the interior of Europe
via Rotterdam, may be involved in road
carriage where CMR applies. A lot of cargo is
carried around Europe by lorry and trailer
where no sea leg is involved at all.
 96

However, as we will see, if a “...the wrongful act or neglect of the claimant

problem occurs while the lorry is
on a ferry or a train, then as ...the instructions of the claimant given
long as the road carrier is not otherwise than as the result of a wrongful act
responsible through their act or or neglect on the part of the carrier
omission, their liability will be
...inherent vice of the goods
measured using the convention
that applies to that other ...circumstances which the carrier could not
method of transportation – the avoid and the consequences of which he was
sea conventions, for example. If unable to prevent.”
no other convention would
apply, then the road convention The carrier shall also be relieved of liability
will continue to prevail. where the loss or damage arises from the
special risks inherent in the following
Consignment notes circumstances:
The contract of carriage shall be confirmed "(a) use of unsheeted vehicles when their
by the making out of a consignment note. use has been expressly agreed and specified
The consignment note will be prima facie in the consignment note;”
evidence of the making of the contract, the
condition of carriage and the receipt of the Goods carried on unsheeted vehicles are at
goods by the carrier. greater risk of damage by rain, etc. However,
the carrier would not be entitled to rely on this
If, at the time of receipt of the goods, the provision if there has been an abnormal
carrier does not make any specific shortage, or a loss of any package.
reservations on the consignment note, it will
be presumed that the goods and their "(b) the lack of or defective condition of the
packaging appeared to be in good condition packing in the case of goods which, by their
at the time and that the number of packages nature, are liable to wastage or to be
and their marks and numbers corresponded damaged when not packed or when not
with what is stated in the document. properly packed;”
If a road carrier gives a clean, unclaused An example of such goods would be sheets
consignment note but later wishes to argue of glass.
that the goods were not in sound condition at
the time they were received, the onus is upon "(c) handling, loading, stowage or unloading
the carrier to prove this. of the goods by the sender, the consignee or
person acting on behalf of the sender or
Carrier’s liability and defences consignee;
CMR makes the carrier liable … (d) the nature of certain kinds of goods which
particularly exposes them to total or partial
“...for the total or partial loss of the goods and loss or to damage, especially through
for damage thereto occurring between the breakage, rust, decay, desiccation, leakage,
time when he takes over the goods and the normal wastage, or the action of moth or
time of delivery, as well as for any delay in vermin;”
delivery.”
With regard to (d), note that, if the carriage is
Basically, the carrier is going to be liable for performed in a vehicle specially equipped to
loss, damage or delay occurring while the protect the goods from the effects of heat,
goods are in their custody unless they can cold, variations in temperature or the humidity
prove their innocence. in the air, the carrier has to prove that all
The carrier shall, however, be relieved of reasonable steps were taken with regard to
liability if the loss, damage or delay was the choice, maintenance and use of such
caused by … vehicle and that there was compliance with
all given instructions.
 97

"(e) insufficiency or inadequacy of marks or per kilogram based on the gross weight of the
numbers on the packages; lost or damaged goods.

(f) the carriage of livestock.” In addition to the above limit the carrier must
refund carriage charges and customs duties:
Note that, with regard to livestock, the carrier
must prove that all steps normally incumbent ■ In full, in the case of total loss.
in the circumstances were taken and that any
special instructions given were complied with. ■ In proportion to the loss sustained, in the
case of partial loss.
The things listed in (a) to (f) are
circumstances or types of cargo which bring With regard to any damage that the claimant
their own peculiar risks and over which the has proved results from delay, the
carrier would have little or no control. compensation for that damage shall not
However, the burden of proving that one of exceed the carriage charges.
these things caused the loss or damage still
rests firmly on the carrier. The shipper may make a special declaration
of value at the time of shipment to obtain a
The carrier will not be relieved of liability if the higher limit but would usually be charged a
loss or damage arises by reason of either of: higher carriage rate. Such special
declarations are rare.
■ The defective condition of the vehicle used
to perform the carriage. It is possible to break the carrier’s right to
limit their liability.
■ The wrongful act or neglect of the person
from whom the vehicle may have been hired, “The carrier shall not be entitled to avail
or the agents or the servants of that person. himself of the provisions of this chapter which
exclude or limit his liability, or which shift the
Amount of compensation burden of proof, if the damage was caused
by his wilful misconduct or by such default on
Where the carrier is liable for loss or damage, his part as, in accordance with the law of the
the amount that must be paid as Court or Tribunal seized of the case, is
compensation shall be: considered equivalent to wilful misconduct.”
■ Calculated by reference to the value of the The same applies to the servants and agents
goods at the place and time at which they that the carrier uses for the performance of
were accepted for carriage;. the carriage.
and fixed according to any of: Limitations on time
■ The commodity exchange price. Notice of loss or damage must be given to
the carrier:
■ If there is no such price, according to the
current market price. ■ Immediately, if the loss or damage is
apparent at the time of delivery.
■ If there is no commodity exchange price or
current market price, the normal value of ■ Within seven days (in writing), if the loss or
goods of the same kind and quality.
damage was not apparent at the time of
Limitation of liability delivery.
As with other conventions relating to the Acceptance of the goods at the time of
carriage of goods, the road carrier is (usually) delivery without complaint will be prima facie
able to limit their liability for loss or damage. evidence that the goods were sound at that
When CMR was introduced the limits of time (meaning the burden will be upon the
liability were expressed in gold francs per claimant to prove otherwise).
kilogram. They are now expressed in Special
Drawing Rights (SDRs) and the limit of In respect of compensation being sought for
liability as at 2010 is calculated at 8.33 SDRs delay in delivery, the claimant must give
 98

notice of claim within 21 days of taking ■ A court or tribunal in the country where the
delivery of the goods. carrier took over custody of the goods.

In the case of partial loss, damage or delay in ■ A court or tribunal in the country to which
delivery, the claim will become time barred the goods were destined under the contract
one year after the date of delivery of the of carriage.
goods.
The choice of country for bringing an action is
In the case of total loss, the one-year period likely to have a bearing on the outcome.
will run from the thirtieth day after the expiry Some countries are considered more ‘carrier
of any agreed time limit for delivery agreed in friendly’ than others. There are also
the contract or, in the absence of such an provisions in CMR governing the
agreement, the sixtieth day from the date on commencement of an action in one country
which the carrier took over custody of the when an action on the same claim has
goods. already been started in another country.
Commencement of action and choice of
However, where the claim (whether partial or forum for that action are areas that need the
total) arises as a result of the carrier’s wilful considered advice of a competent lawyer.
misconduct, the time-bar period is extended
to three years. A Lloyd’s Agent should never
appoint lawyers or seek to
There are circumstances in which the time- instigate legal action without
bar period can be suspended. However, the first receiving their principal’s
claimant is always best advised to err on the express authority and approval.
side of caution and seek any necessary time
extension from the one year-anniversary of When there is more than one carrier
the date of delivery.
Sometimes there will be more than one
Watch these slightly different carrier involved in a single contract of
time bars relating to delay and carriage. In such cases:
non- delivery – it is always
advisable to notify the carrier as ■ Each of them shall be responsible for the
soon as possible and work on performance of the whole operation.
the basis of a one-year time bar
■ The second and subsequent carriers each
from date when goods should
become a party to the contract by reason of
have been delivered rather than
accepting the goods and the consignment
calculate the 30 days and then
note.
add another year.
In which country should the claim be Which carrier can the claimant sue?
brought? Legal proceedings concerning a claim for
Legal proceedings can be brought in any of loss, damage or delay based on the same
the following places (provided they are a contract of carriage can be brought only
contracting country): against:

■ Any court or tribunal of a country ■ The first carrier.

designated by agreement between the ■ The last carrier.
parties.
■ The carrier who was performing that
■ A court or tribunal in the country where the portion of the carriage during which the event
carrier is ordinarily resident or has their which caused the loss, damage or delay took
principal place of business. place.
■ A court or tribunal in the country where the An action may be brought against several of
carrier has a branch or agency through which these carriers at the same time.
the carriage was made.
 99

In road carriage, there can be a number of Which countries apply CMR?

carriers, sub-contracted carriers and
successive carriers and it can be difficult to As at June 2019 CMR was in effect in 45
establish who is responsible for the loss or countries.
damage. Unless there are compelling
reasons for going against a different carrier, it Note that, by agreement between the two
is usually best to pursue the first carrier, as countries, CMR does not apply on carriage
this is the party with whom the contract was between the United Kingdom and Ireland.
initially entered into. As with all such conventions, further
countries may in due course ratify and apply
CMR. It is the responsibility of the Lloyd’s
Agent handling the recovery action on a road
transit claim to ascertain whether or not CMR
will apply.

This link can be used to find out whether a

particular country applies CMR:
https://www.unece.org
100
 101

Chapter 9
General Average and
Salvage
 102

Contents
9.1. Introduction 103
9.2. The York-Antwerp Rules 106
9.3. The York-Antwerp Rules 1994 107
9.4. Salvage 121
9.5. The York-Antwerp Rules 2016 123
9.6. Miscellaneous points on general average and salvage 124
9.7. General average example 126
 103

9.1. Introduction of Octobrus’ cargo. Here is the first

calculation that Octobrus put forward:
Here is a tale you will not find in the ancient
scriptures, but it will have happened and it Value of
will have happened many times. property Contribution
saved (in to Octobrus’
A ship was sailing across the Mediterranean pieces of loss
Sea carrying three parcels of cargo for three silver)
merchants, Augustus, Septimus and Value of ship
1,000 83.34
Octobrus. Each parcel of cargo was valued at
100 pieces of silver. A violent storm Value of
Augustus’
developed and the ship was blown ashore, 100 8.33
cargo
becoming stuck fast. The heavy seas
continued to pound the ship, threatening to Value of
break her up. The master knew that he had to Septimus’ 100 8.33
take action to prevent the total loss of the cargo
ship and all the cargo, so he decided to
1,200 100.00
lighten the ship by jettisoning (throwing
overboard) some of the cargo. But whose
cargo should he throw overboard, for the loss
of their goods would deal a serious financial There were immediate objections from the
blow to their owner? In the end, it was the others.
parcel of cargo belonging to Octobrus that
was sacrificed. The ship refloated and was The shipowner questioned whether his
able to weather the storm and eventually contribution should be based on the sound
arrive safely at destination. value of his ship (1,000 pieces of silver) when
his ship had suffered damage in the storm
At destination, the parcels of cargo owned by which would cost 200 pieces of silver to
Augustus and Septimus were delivered to repair. His argument was that at the time the
them. They each paid to the shipowner the contribution was being asked for, his ship
agreed freight of ten pieces of silver, but was only in fact worth 800 pieces of silver in
Octobrus was left with nothing and faced reality because of the damage repairs that
financial ruin. He felt this was unfair. His had to be done, that he would have to pay
cargo had been sacrificed in order to save for.
the ship and the other cargo. Why should he
not be compensated by them? They were all Augustus and Septimus argued that, as they
agreed that their common purpose had been had each paid a freight of ten pieces of silver
to deliver the cargo to its destination on the on delivery of their goods, the true benefit to
same ship on which it had started its journey, them of the sacrifice of Octobrus’ cargo was
and that the ship and its cargo had all been only 90 pieces of silver (ie the value of their
put in danger by the grounding and the storm. cargo, less the freight they had to pay to take
The ship and all her cargo could have been delivery of it).
lost if the action taken of sacrificing Octobrus’
cargo had not been done. So, they convened
a meeting and tried to decide the best thing
to do. They were all in agreement that they
should contribute to Octobrus’ loss but the
big question was, on what basis and for how
much?

Initially, the following was proposed – that the

shipowner, Augustus and Septimus should
each pay a contribution to Octobrus’ loss
based on the original full value of their own
property that had been saved by the sacrifice
 104

And so a second apportionment was made,

as follows:
Value of
Value of property Contribution
property Contribution saved (in to Octobrus’
saved (in to Octobrus’ pieces of loss
pieces of loss silver)
silver) Ship, net
Value of ship in arrived value as
800 74.77
sound condition 1,000 above

Less: damage 200 Net value of

800 81.64 Augustus’
Value of cargo, as 90 8.41
Augustus’ above
100
cargo
Net value of
Less: freight Septimus’
payable on 10 cargo, as 90 8.41
delivery above
90 9.18
Value of Add: amount of
Septimus’ his loss ‘made
100 good’ by the 90 8.41
cargo
contribution of
Less: freight others
payable on 10 1,070 100.00
delivery
90 9.18
980 100.00
While Octobrus was happy to accept that
making a contribution to his own loss was
perfectly fair, he now objected that the
But still there were objections. shipowner was receiving an unfair
advantage. The sacrifice of Octobrus’ cargo
Augustus argued that this rewarded Octobrus not only saved the other property, it also
for the whole of his loss, whereas, if his cargo enabled the shipowner to earn a freight that
had been delivered, he would have had to would otherwise have been denied him (ie
pay his freight of ten pieces of silver. the freight of 20 pieces of silver on Augustus’
Therefore, he now had an unfair benefit – and Septimus’ cargo which would not have
and in fact could be said to be in a better been earned if the ship and all her cargo had
position because of his cargo being been lost). Surely this should be recognised
sacrificed. too.
Septimus argued that, even if this was taken The shipowner could not object to this but
into account, Octobrus was still at an pointed out that the sacrifice of Octobrus’
advantage as the remaining parties were cargo had led to him losing the ten pieces of
having to bear a share of Octobrus’ loss silver in freight he would have earned had
whereas Octobrus was not. And so a further that cargo not been sacrificed (remember that
apportionment was made, this time as unless payable in advance on a lost or not
follows: lost basis, freight cannot be earned if the
cargo is not delivered).
 105

Should this not be recognised also as a

sacrifice to save the property? And so it was, The value of Augustus’ cargo at
by casting the figures yet again, this time as destination (net of freight payable)
90.00
follows: was

Value of Contribution His contribution to the sacrifices was,

property to Octobrus’ as above 9.00
saved (in loss (100) and
pieces of sacrificed The net advantage of these
81.00
silver) freight (10) sacrifices to Augustus was
Ship, net arrived (pieces of silver)
value as above 800 80.00
or 90% of the value of Augustus’ cargo on
Net value of arrival at destination.
Augustus’ cargo,
90 9.00
as above Septimus was in exactly the same position as
Augustus.
Net value of
Septimus’ cargo, The position for Octobrus was as follows:
90 9.00
as above
Value of cargo sacrificed (net of
Octobrus’ cargo freight that he would have had to pay
net value on delivery) and ‘made good’ to him 90.00
including amount by the contribution of the others was
90 9.00
‘made good’, as
above His contribution to the sacrifices was,
as above 9.00
Add:value of
freight sacrificed He therefore received from the
and being ‘made 81.00
30 3.00 others, on balance
good’ by the (pieces of silver)
contribution of
others Meaning he was now in exactly the same net
1,100 110.00 position as the other cargo interests.

With regard to the freight, the position was as

The fairness of this apportionment could be follows:
demonstrated by the following summary:
The freight that had been at risk, but
The value of the ship at destination which the shipowner had been able
was 800.00 to earn by reason of the sacrifice of 20.00
Octobrus’ cargo was
The contributions to the sacrifices
payable by the ship was 80.00 The freight that had been sacrificed
along with Octobrus’ cargo was
10.00
The net advantage of these ‘made good’ to the shipowner
720.00
sacrifices to the shipowner was thus
(pieces of silver) So the total freight received or ‘made
good’ was 30.00
or 90% of the value of the ship on arrival at
destination. But the freight had had to pay a
contribution to the total sacrifices of 3.00

So the net benefit to the shipowner

27.00
with regard to his freight was
(pieces of silver)

or 90% of the value of the freight to be

earned at destination.
 106

What the parties had in effect done was to between the parties to the adventure, are
draw up a general average adjustment. They contained in a document known as a
had fairly and equally shared the burden of Statement of General Average, more
the sacrifice of some of the property that had commonly referred to as the General
been made to save the rest of the adventure. Average Adjustment.
It was out of such circumstances in the very
earliest days of seaborne trade on the This document is nearly always drawn up by
Mediterranean Sea that the principle of what a professional average adjuster. Lloyd’s
became known as general average first Agents studying for this examination are
emerged. It is the equitable sharing of the unlikely ever to have to draw up such an
costs (both in expenditure and the sacrifice of adjustment. However, they may find
property) of bringing to safety the property themselves acting as a surveyor ‘in the
involved in a maritime adventure when that general interest’ in a general average case,
property finds itself in a position of peril that or may be advising a principal whose
threatens to destroy it. property is involved in such a case. A good
understanding of the principles and practices
The example above is, of course, contrived of general average is therefore necessary.
but it amply demonstrates the principles that
lie at the heart of general average, viz.: 9.2. The York-Antwerp Rules
1 That where expenses are incurred or General average has historically been
sacrifices of property are made for the sole recognised by all maritime nations. However,
purpose of rescuing from potential difficulties arose because different nations
destruction the adventure and the property dealt with general average in different ways.
involved in it, all those who benefit should Some nations were more generous than
compensate those who made the expenditure others in what they would allow the parties in
or had their property sacrificed. the adventure to recover as general average.
In order to bring about uniformity, the York-
2 That the compensation (or ‘made good’, as Antwerp Rules were created towards the end
it is usually described) for property sacrificed of the 19th century. These rules provide a
also has to bear its own contribution to the framework for the treatment of general
general average so that it is put in exactly the average and are given effect by clauses in
same position as the property that was Bills of Lading that provide for their use. A
saved. typical clause might read:

3 That the values of property for contribution General Average to be adjusted in London
purposes are to be the actual values (net of according to York-Antwerp Rules 1994.
any damage) on arrival at destination (known
as the time and place the adventure ends), to Such a clause would usually stipulate the
which must be added any amounts that are place at which the general average is to be
‘made good’. adjusted. Sometimes, the clause will stipulate
the currency in which the adjustment is to be
4 That freight, where it is earned only on stated, usually the shipowner’s normal
delivery of the cargo at final destination, must currency of trading.
be treated the same as property saved and
bear its fair share of the general average The York-Antwerp Rules have been
losses and expenses. periodically revised over the years and, at
any given time, there may be more than one
5 That it makes no difference whose version of the rules in use. The most recent
property is sacrificed or which party makes version of the rules is the York-Antwerp
the expenditure; after the general average is Rules 2016. This version has been supported
adjusted, each party has borne exactly the by BIMCO and it is hoped that it will prove to
same proportion thereof. be more popular than the previous 2004 rules
which were not as favourable to owners.
The details of all the costs incurred and
sacrifices made in any case of general The rules most commonly encountered are
average, plus how they are to be shared the York-Antwerp Rules 1994, and it is on
 107

these rules that the text will concentrate with ordinary charge, that has merely been
contrasts drawn with 2016 as appropriate. increased as a result of the general average
situation.
9.3. The York-Antwerp Rules 1994
The full rules are contained in the appendix.
This text will highlight the most important
features of those rules.

The rules are divided into two parts. There

are seven lettered rules (A to G) which set
out the general principles to be followed.
There are then twenty- two numbered rules
which deal with specific circumstances or
subjects. These are always shown in Roman
numerals (I to XXII). Three very important
points are made at the start of the rules:

■ That where the rules apply they will

override any law or practice which is
inconsistent with the rules.

■ That where a situation is covered by one of

the numbered rules, it is the numbered rule
which is to be followed, ie takes precedence,
even if it is inconsistent with anything in the
general principles in the lettered rules. The
important point to note here is that the
numbered rules deal with very specific
circumstances, whereas the lettered rules are
more general in nature.

■ That there can be no allowance in general

average for sacrifice or expenditure unless it
is reasonably made or incurred. The party
making the sacrifice or incurring the
expenditure will always be looking to have
the other parties involved contribute, but the
other parties have rights of challenge based
on the overriding concept of reasonableness.

Rule A

This rule contains a definition of general

average which closely follows the English law
definition:

There is a general average act when, and

only when, any extraordinary sacrifice or
expenditure is intentionally and reasonably
made or incurred.

The sacrifice that is made or the expenditure

that is incurred must be extraordinary, i.e. it
must be something that would not be made
or incurred in the normal course of events.
This is to be contrasted with a normal, or
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Extraordinary example aground. The cost of rescuing the adventure

(e.g. the cost of towage to a place of safety)
The cost of extra fuel burnt in order to outrun would be a general average expenditure.
pirates who threaten to capture the ship and
cargo would not be allowable as general Example two
average: the burning of fuel to propel the ship
is an ordinary use of that fuel, not an A fire breaks out in one of the ship’s holds. It
extraordinary one. might be a small and localised fire but if it is
not extinguished it might eventually spread
It has to be intentionally made or incurred, ie and engulf the entire ship and cargo. The
the sacrifice of property or the expenditure of cost of fighting the fire would be a general
money must result from a conscious decision average expenditure. Any damage to the ship
and not be merely accidental or incidental – or cargo directly caused by fighting the fire
and it must be reasonable. (e.g. damage to other cargo by water used to
extinguish the fire) would be a general
Intentional example average sacrifice.
Cargo that has already fallen overboard Example three
cannot be claimed as a general average
sacrifice. The ship suffers a breakdown in her
refrigeration machinery, which is leading to
“… for the common safety …” some frozen cargo defrosting but is causing
no other problems either to other cargo or the
The above sacrifices or expenditure must be ship itself.
made for the common safety, i.e. for the
benefit of all the property at risk in the This would not be general average
adventure and not just for one or some necessarily, as the problem affects only one
interests. of the interests.
“… for the purpose of preserving from peril Some other specific examples of general
the property involved in a common maritime average sacrifices and expenditure are dealt
adventure.” with in the numbered rules below.
The reason for making the sacrifice or Rule B
incurring the expenditure must be to rescue
the adventure (the ship and everything This rule relates to vessels that are pushing
aboard it) from a situation of peril or danger or towing, or being towed or pushed. An
that threatens to bring about their complete example of this is ‘trains’ of barges being
destruction. It is important to understand that towed or pushed in convoy along major
the adventure need not be fully in the grip of riverways. If they are involved in commercial
a peril for there to be a general average activities (as opposed to a salvage operation)
situation. It is enough that the adventure, the tug and the barges that form that ‘train’
because of some mishap or accident, finds will be considered a common maritime
itself in a situation where, if something is not adventure.
done about it, the ship and everything on
board it are eventually likely to be lost. Need for different interests

Example one General average will only apply if there is a

common maritime adventure – ie two or more
The ship suffers an engine breakdown and is separate interests involved in the journey.
floating without motive power on a completely Examples would include a ship in ballast if
calm sea. The ship is not in any immediate she is time chartered, as the time charterer’s
danger of sinking but the adventure is in a bunkers would be a separate interest, or
position of peril because, if a storm blows up even a ship and cargo owned by the same
or the seas become very rough, the ship person as they are also considered as
would not be able to ride out that storm safely separate interests.
or is at risk of being blown onto rocks or run
Rule C
 109

This rule stipulates that … caused the casualty, perhaps because their
cargo was shipped in unstable condition and
“Only such losses, damages or expenses began to heat dangerously.
which are the direct consequence of the
General Average act shall be allowed as
General Average.”

Indirect losses, or those not reasonably

foreseeable as likely to result from the act,
will not be allowed as general average. For
example, if goods destined for a construction
project are sacrificed, the owner of the goods
would not be able to claim in general average
for any contractual penalties that must be
paid as a result of a delay in the construction
project. Such losses are not a direct
consequence of the sacrifice: they are
indirect and too remote.

This is reinforced by the third paragraph of

Rule C which specifies demurrage, loss of
market and losses by delay as specific types
of indirect loss which cannot be allowed as
general average.

The middle of Rule C makes it clear that

there can be no allowance in general average
for loss, damage or expense resulting from
damage to the environment or an escape of
pollutant substances.

Note, however, that there are some limited

circumstances in the numbered rules in which
they could be allowed as general average.
Remember, the numbered rules take
precedence over the lettered rules.

Rule D

This rule does not deal with principles of

general average or any type of allowance but
refers to the question of fault. There will often
be cases where a casualty that gives rise to a
general average situation is caused by the
fault of one of the parties.

It might be that the shipowner had failed to

exercise due diligence to make the ship
seaworthy at the start of the voyage (see
chapter 8) and the casualty arose directly
from that unseaworthiness. In such
circumstances, cargo interests who are
asked to pay a contribution to the
shipowner’s general average losses may
have a defence under the contract of carriage
against paying it. In other cases, it might be
the negligence of a cargo shipper that has
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Example allowable as general average. This rule

provides that the cost of the alternative action
A ship goes aground because of a failure in will be allowed as general average as a
her steering gear and there is cargo sacrifice ‘substitute’, but only up to the amount that
to lighten the ship to refloat and the ship would have been incurred had the first course
suffers further damage to her bottom due to of action been adopted.
the refloating work. Was the failure in the
steering gear completely unexpected and Example
arose from something that could never have
been spotted even by the most diligent Ship has arrived in the port of refuge and
inspections? Alternatively, was it because some repairs will have to be done. The cargo
there was a lack of routine maintenance? might have to be offloaded and stored while
this is done, and then reloaded for the
The fact that the circumstances that gave rise onwards journey. These costs are normally
to the general average situation may have recoverable in general average.
arisen as the result of negligence or fault of
one of the parties does not mean that there is However, the cargo interests might decide to
no general average. A general average forward cargo to destination themselves and
adjustment would still be drawn up in the not wait for the repairs to be done – which is
usual way but, depending on the a perfectly logical business decision. By
circumstances, cargo interests may have a doing that, of course, those costs of storing
defence under the contract of carriage and reloading have been saved.
against paying their contribution in general
average or, if the fault was that of someone Therefore, the forwarding costs (which would
other than the shipowner, the contributing not normally be allowed in general average
interests may have a claim in tort against that as they only benefit the cargo interests) can
party. be substituted into the general average pot
up to the value of the storage and reloading
Rule E costs that would have been allowed in
general average anyway and that have been
The onus of proof is upon the party claiming saved.
in general average to show that the loss or
expense claimed is properly allowable as This is an area where you, as a surveyor,
general average. might be asked to advise the average
adjuster what the costs of taking various
This is self-explanatory. In practice, it means actions might have been, so that the adjuster
that the party claiming must provide the can consider whether the steps actually taken
average adjuster with full documentary and by, for example, the cargo interests, were
other evidence of their claim. General eligible as substituted expenses and if so, to
average adjustments, especially in complex what value.
cases, can take several years to complete.
Rule G
In an attempt to speed up the process, a new
rule was introduced in 1994 giving the parties This rule affirms that the place at which
12 months from the termination of the losses, contributions to general average and
adventure in which to provide the average values are to be based are those pertaining
adjuster with evidence of the claim. at the time and place where the adventure
ends. That will be the case regardless of
Rule F where the average adjustment is drawn up.

This rule deals with something called The latter part of Rule G is a restatement of
‘substituted expenses’. It frequently happens the words appearing in a standard Non-
that the cost of carrying out a particular Separation Agreement (NSA). As mentioned
operation would be allowable as general in the commentary under Rule F, cargo is
average. However, it might be that an frequently forwarded to destination from a
alternative course of action is taken instead, port of refuge on a substitute vessel. It
the cost of which would not ordinarily be follows that, as soon as the ship and cargo
 111

part company (or are separated from each Rule I – Jettison of cargo
other), the common adventure is at an end.
“No jettison of cargo shall be made good as
General average allowances would cease at general average unless such cargo is carried
that point because any expenses incurred in accordance with the recognised custom of
after the separation of the ship and the cargo the trade.”
could not be for the benefit of all. This would
deprive the shipowner of claiming in general The proper place on board a ship in which to
average certain expenses which would carry cargo is in the holds. However, cargo is
otherwise be allowable under Rules X and XI sometimes stowed on deck and is therefore
while the ship is at the port of refuge. To get the most likely of cargoes to be jettisoned if
over this problem, it was customary for cargo the vessel needs to be lightened in an
interests to be asked to sign a NSA agreeing emergency, eg to refloat from a position
to treat the general average as still in being aground.
and allow the shipowner to claim such
allowances, even though the cargo had been If there is a jettison from the deck of cargo
separated from the common adventure. This that should not have been stowed there, this
is a perfectly fair arrangement. The will not be allowed as general average. (In
shipowner is under no obligation to forward such circumstances, the cargo owner is likely
the cargo to destination by other means if the to have a direct claim against the shipowner
voyage can be continued and the cargo under the contract of carriage for the loss of
delivered after the ship has been repaired. their goods.) There is an exception to this in
However, it is often expedient (or sometimes trades where it is customary to carry goods
cheaper) to forward the cargo this way rather on deck, e.g. in the container trade or on
than keep it at the port of refuge for the vessels carrying timber.
duration of the repairs. Sometimes it is cargo Rule II – Loss or damage by sacrifices for
interests themselves who desire release of the common safety
their goods at a port of refuge, and the
shipowner is still entitled to demand a NSA. This rule reaffirms the principle that property
Because this was such a common which is sacrificed in order to rescue the
occurrence, the standard NSA wording was whole of the property (the ‘common maritime
incorporated into Rule G in the 1994 revision adventure’) from a position of peril shall be
of the York-Antwerp Rules. made good in general average.
As mentioned above, some of the numbered Example
rules override the general principles in the
lettered rules. Where this is the case, it is the Loss or damage to property caused in the act
numbered rule which takes precedence as of making that sacrifice, including by water
long as the situation falls exactly within the which goes down a ship’s hatch or other
specific circumstances of the numbered rule. opening made for the purpose of making that
If not, then the general principle from the sacrifice. For example, the hatches might be
lettered rule will still be applied. opened in order to make an emergency
jettison of cargo. If seawater (or rainwater)
enters the hatches during this operation and
damages other cargo in the hold, the damage
to that other cargo will be allowed in general
average as being a direct consequence of
making the sacrifice of the jettisoned cargo.
 112

Rule III – Extinguishing fire on shipboard because it had already been lost by an
accident, its subsequent jettison could not be
Fires on board a ship are not uncommon. considered a sacrifice allowable as general
Where a fire causes damage to the ship or to average.
the cargo on board, such damage is not
allowable as general average. It must be Rule V – Voluntary stranding
borne by the owner of that damaged property
(as a particular average rather than a general A ship might be intentionally run on shore for
average loss). However, the fire will the common safety. An example might be
potentially put the ship and cargo in a where cargo has shifted in a storm to such an
position of peril. extent that the vessel is seriously listing and
in danger of capsizing. Another example
Therefore, any damage caused in the act of might be where the vessel has been holed
trying to extinguish the fire would be allowed below the water line in a collision and is
as general average as it is being done for the taking on water that threatens to destabilise
benefit of all. This would usually be damage her and possibly cause her to sink.
by water used to extinguish the fire but might Deliberately beaching the ship might be the
include other measures such as deliberately only way to prevent such a capsize. Such an
beaching the ship as a fire- fighting measure. act is likely to cause damage to the bottom of
the ship and may also result in the loss of or
This rule makes it clear that damage by the damage to some of the cargo.
heat of the fire or by smoke is not allowable
as general average, thereby emphasising a As this was an intentional act to rescue the
basic principle – that a general loss or adventure from peril, the loss or damage that
sacrifice is one that is intentionally or results would be allowable as general
deliberately made in order to restore safety average. This rule makes it clear that such
and not one that happens by mere accident – loss or damage intentionally caused to
heat or smoke damage will not be escape from peril would be allowable as
deliberately caused as their movement is general average even if the conditions were
uncontrolled. However, the fire-fighters will such that she might eventually have been
make deliberate decisions as to where to put driven on shore anyway. This takes away the
the water during fire-fighting operations. need to argue about ‘what might have
happened’ if the intentional grounding had
Rule IV – Cutting away wreck not been carried out.
This rule dates from the days when cargo Rule VI – Salvage remuneration
ships had sails and masts. It sometimes
happened that sails or masts would be There are two types of salvage operation.
damaged beyond repair by an accident and The first is pure salvage (or salvage proper)
were then ‘cut away’ and discarded. Even which is an operation by a volunteer from
where the discarding of the damaged sail or outside the adventure (usually a professional
mast was necessary to restore the common salvor) designed to rescue the ship and its
safety, its loss could not be allowed as cargo from a position of peril. It might, for
general average because it had already been example, be the use of the salvor’s tugs to
effectively lost or destroyed by the accident refloat the ship when she has run aground, or
and the shipowner suffered no further loss as the use of the salvor’s fire-fighting equipment
a result of discarding it. The rule now refers to extinguish a fire on board a ship at sea. If
to “... wreck or parts of the ship which have the salvor is successful in saving property by
been previously carried away or are their efforts, they are entitled to a reward.
effectively lost by accident ...”, but the
principle remains the same. The second type of salvage is salvage under
contract. This is where a contract is
Example negotiated with the salvor (usually by the
shipowner) to carry out a specific operation. It
Cargo which had been destroyed by, say, might, for example, be a contract on a lump
fire, and which was subsequently jettisoned sum or daily rate basis for a salvor’s tug to
in an emergency to lighten the vessel;
 113

tow a vessel to a place of safety after she has they are being used for their ordinary
suffered an engine breakdown. purpose.

This rule provides that any payments on Rule VII provides an exception to this and
account of salvage, whether pure salvage or allows in general average any loss or
salvage under contract, where the salvage damage to the ship’s machinery and boilers
service was for the purpose of rescuing the which is caused as a direct consequence of
property in the adventure from a position of the ship’s engines being intentionally used to
peril, shall be allowed as general average. try to refloat the ship when she is aground
This will include arbitrators’ fees and the fees (which is not the usual function of the ship’s
of the Council of Lloyd’s where the salvage is engines).
carried out under Lloyd’s Open Form. Lloyd’s
Open Form is not quite the same as true There can never be an allowance in general
contractual salvage in that the price is not average for damage to the ship’s propelling
specifically set out in the agreement but is machinery and boilers caused by working
treated as a form of contractual salvage them while the ship is afloat.
nonetheless.
Rule VIII – Expenses lightening a ship
It also includes any element of the salvor’s when ashore and consequent damage
award (made by a court or at arbitration)
which is enhanced because the salvage If a ship is aground and, as an intentional act
service also helped to save damage to the to refloat her, cargo or ship’s fuel or stores
environment. are discharged, the extra costs of lightening,
including lighter hire and re-shipping where
This is one of those instances where the these are incurred, will be allowed as general
provisions in Rule C regarding damage to the average.
environment or an escape of pollutant
substances is overridden by a specific Any damage to the ship (including her fuel
numbered rule. This exception does not and stores) and cargo caused as a direct
extend to any Special Compensation payable consequence of such lightering and reloading
to the salvor under Article 14 of the operations is also allowed as general
International Convention on Salvage 1989 average.
specifically for preventing damage to the Rule IX – Cargo, ship’s materials and
environment. (Lloyd’s Open Form and stores used for fuel
Special Compensation are dealt with further
under the section on salvage later in this In extreme circumstances, it might be
chapter.) necessary for cargo or ship’s materials or
stores to be used as fuel in an emergency in
Some important changes were made to this order to rescue the adventure from a position
Rule VI in the York-Antwerp Rules 2004, as of peril. In such circumstances, those items
will be seen when dealing with those rules would be deemed to have been sacrificed for
further in this chapter. the common safety and may therefore be
Rule VII – Damage to machinery and made good as general average.
boilers Where it is ship’s stores or materials that are
This rule deals with damage to the propelling sacrificed in this way, the estimated cost of
machinery and boilers of a ship. As was seen fuel that would have been consumed had it
above when dealing with Rule A, loss, been available must be credited against the
damage or expense can only be allowed in allowance.
general average if it is extraordinary and not Rule X – Expenses at port of refuge, etc
something which would happen or be
incurred in the ordinary course of events. The It is under this rule (and Rule XI) that most
purpose of a ship’s propelling machinery and expenses that are allowed in general average
boilers is to power the ship. It therefore are incurred. There are many situations in
follows that loss or damage sustained to which it is necessary for a ship to put into a
them cannot be allowed in general average if
 114

port of refuge, in consequence of an ■ The cost of handling on board or

accident, a sacrifice or some other discharging cargo, fuel or stores when such
extraordinary circumstance which makes it measures are either:
necessary to put into that place for the
common safety. Although it is termed a port a. necessary for the common safety, or;
of refuge because of the facts surrounding
the ship’s arrival, that place could actually be b. to enable repairs to the ship to be carried
the port of loading, a port on the expected out which are necessary to allow the
route, or a completely different place remainder of the voyage to be safely
altogether. It all depends on the prosecuted (which would not include repair of
circumstances of the casualty and the best any damage to the ship which is merely
option for the ship at the time. discovered while at the port of refuge and
which is unconnected to any accident or
Examples might include: extraordinary incident having occurred on the
voyage). (The cost of handling on board or
■ The ship having suffered engine problems. discharging cargo, fuel or stores is not
allowable if incurred solely for the purpose of
■ Shifting of the cargo in a storm. restowage as a result of shifting during the
voyage, unless necessary for the common
■ A fire having broken out on board. safety, e.g. where the vessel is still in danger
■ The vessel having been holed in a collision of capsizing even though now in a port.)
or by taking the ground. ■ The cost of storing (including insurance, if
■ A significant number of the crew having reasonably incurred) and reloading the cargo,
been taken ill. fuel or stores, where the cost of their
unloading was allowable in general average
Where a ship does put into a port or place of for one of the preceding reasons.
refuge for the common safety, the costs of
entering that port or place are allowable as There are two other important provisions
general average. under Rule X:

It follows that the cost of being at the port or 1 That if a vessel, having put into a port of
place and the cost of leaving it afterwards for refuge, has to be removed to another port or
the purpose of continuing the voyage with all place because repairs cannot be done at the
or part of the cargo still on board should also first port of refuge, then the foregoing
be allowed in general average, as these are a provisions of Rule X shall apply to the second
direct and foreseeable consequence of the port of refuge. The cost of removing the
decision to go there. The underlying concept vessel to the second port, including any
of general average is the desire by ship and temporary repairs necessary for that purpose
cargo to get to destination together, and and/or towage, shall be allowed as general
costs incurred for the achievement of that average.
common goal are those which are potentially 2 That if a ship is condemned while at the
allowable in general average. port of refuge or does not proceed on her
Rule X determines the expenses that can original voyage, the storage expenses shall
(and cannot) be allowed as general average be allowable only up to:
in such circumstances. These may be ■ the date of the condemnation or
summarised as follows: abandonment of the voyage, or;
■ The cost of entering the port of refuge. ■ the date of completion of the discharge of
■ The corresponding cost of leaving the port cargo, if the condemnation or abandonment
of refuge after the problem has been rectified of the voyage takes place before that date.
(but only if it is with some or all of the original This last point is important and centres
cargo on board and with the intention of around the common desire to complete the
continuing the voyage). journey using the same ship. If that ship will
 115

not be completing the journey either because Putting into a port of refuge will usually entail
she is declared a CTL by her hull a deviation from the intended course of the
underwriters or the shipowner actively voyage. When an average adjuster calculates
chooses to terminate the contracts of allowances for wages and maintenance and
carriage, then the common adventure stops fuel and stores, these must be calculated on
and the ability to share the costs stops as a ‘net deviation’ basis, giving credit for the
well. time and cost that would have been spent on
the voyage had the deviation to the port of
Rule XI – Wages and maintenance of crew refuge not occurred.
and other expenses bearing up for and in
a port of refuge, etc.

Whereas Rule X deals with the costs of

entering and being at a port of refuge,
handling and discharge of cargo while there,
etc, Rule XI deals with those expenses which
a shipowner incurs in running their ship, but
which are effectively ‘wasted money’ while
the ship is being detained at such a place. A
ship is a freight-earning instrument: the
freight earned is designed to cover the The shipowner would have incurred the costs
shipowner’s costs of running their ship and of A-B in any event. So, the average adjuster
prosecuting the voyage for which the freight will calculate A-C (taking into account that the
is collected, plus a measure of profit. The journey to B might have been part
shipowner must continue to pay some or all completed), and then C to B. Once those
of the running costs while a ship is detained costs are added up, the costs of A-B will be
at a port of refuge, even though it is ‘out of deducted, and the balance left will be the
service’ during that period. Rule XI allowance in general average.
recognises that these ‘wasted’ running costs
are being incurred for the common benefit (as The wages and maintenance must be
opposed to the common safety) and allows ‘reasonably incurred’. If a ship faces a
the shipowner to recover them as general prolonged stay at a port of refuge, the most
average, in the circumstances set out in the reasonable course of action is often to
rule. repatriate some of the crew, thereby saving
their wages, etc, and leave on board only a
Remember the idea that ship and cargo want small number of essential crew members.
to get to destination together – anything
helping them to do that is for the common b. The wages and maintenance of the crew
benefit – even if the ship is safe in a port of while at the port of refuge will be allowable in
refuge so there is not the idea of common general average in the following
safety any more. circumstances:
As with Rule X, Rule XI is a long and ■ when a ship shall have entered or been
complex rule and is best dealt with a bit at a detained in any port of place in consequence
time. Its provisions may be summarised as of:
follows:
■ accident, sacrifice or other extraordinary
a. If a ship enters a port of refuge, or returns circumstance which render that necessary for
to a port of loading, in circumstances where the common safety (i.e. the adventure is in a
the cost of so doing is allowable as general position of peril), or;
average under Rule X, then the shipowner
may recover in general average the wages ■ to enable damage to the ship caused by
and maintenance (cost of food, drinking accident or sacrifice to be repaired, where
water, etc) of the crew, plus any fuel and those repairs are necessary for the safe
stores consumed, during the prolongation of prosecution of the voyage (i.e. even though
the voyage by reason of having gone there. not in a position of peril, the adventure could
 116

not be safely resumed without the ship being the original voyage. When that happens,
repaired). allowances for wages and maintenance, fuel
and stores and port charges will cease,
A ship might sometimes be detained at a either:
scheduled port of call as a result of an
accident or incident, such as a fire breaking ■ on the date the ship is condemned or the
out on board. Arguably because she is safe voyage is abandoned, or;
in port she is not in a position of peril as such.
However, the adventure could not be safely ■ on completion of the discharge of cargo, if
resumed without repairs being done to any this occurs after the condemnation or
damage caused. It is more preventative abandonment.
action in this case, but to the benefit of all the
participants concerned. Reference is made here to Rule G (above)
and the Non-Separation Agreement. If the
In such circumstances, that port of call vessel can be repaired and continue the
effectively becomes a port of refuge for the voyage with cargo to destination, but it is
purposes of Rule XI during the extra period decided for business reasons instead to
that she is detained there. The allowance for forward cargo to destination by another
wages and maintenance will continue until means, the wording of Rule G and/or any
the ship is, or should have been, ready to separate NSA signed by cargo interests
proceed on the voyage. would apply. The common adventure would
not be considered at an end in those
Other charges or allowances which may be circumstances and the shipowner would still
admitted to general average while the vessel be able to claim in general average for the
is at a port of refuge are: port of refuge expenses referred to in Rules X
and XI.
■ Fuel and stores consumed during the extra
period of detention, except any fuel and The last part of Rule XI deals with some
stores consumed in effecting repairs which specific circumstances where the cost of
are not themselves allowable as general measures undertaken to minimise damage to
average – you, as a surveyor, may be asked the environment can be allowed in general
to comment on the breakdown in repair costs average. These are:
for example.
■ As part of an operation performed for the
■ Port charges during the extra period of common safety which, had it been
detention, except such port charges as are undertaken by a party from outside the
incurred solely by reason of repairs which are adventure, would have entitled that party to a
not allowable in general average. salvage award. (This will be better
understood after the section on salvage
Wages and maintenance, fuel and stores and below is studied.)
port charges will not be allowable in general
average where the reason for being detained ■ As a condition of entry to or departure from
at the port is the discovery of damage that is a port or place of refuge (as defined in Rule
not connected to any accident or other X). This might include the obligatory placing
extraordinary circumstance having occurred of booms around
on the voyage.
the vessel as a condition of entry in
Example circumstances where the authorities perceive
a threat of leakage of pollutant substances.
A vessel might be detained as part of a port
control inspection discovering damage which ■ As a condition of remaining at the port or
cannot be explained by an accident or place of refuge. BUT if there is an actual
extraordinary circumstance during the escape of polluting substances, the cost of
voyage. additional measures required to minimise
environmental damage will not be allowed as
Sometimes a ship that has put into a port of general average.
refuge is condemned or does not proceed on
 117

■ When incurred necessarily in connection The cost of temporary repairs can then be
with the unloading, storing or reloading of dealt with as a substituted expense (see Rule
cargo when the cost of those operations is F). This means that the cost of those
allowable as general average. temporary repairs can be allowed as general
average, but only up to the amount of general
This is another very specific average expenses saved by shortening the
exception to the general stay at the port of refuge. If the temporary
provisions in Rule C that no repairs cost more than the amounts saved in
pollution related matters are port of refuge expenses, then the balance will
allowed in general average. fall for the shipowner’s account only.
Rule XII – Damage to cargo in Rule XV – Loss of freight
discharging, etc
Sometimes, under the contract of carriage,
If the costs of handling, discharging, storing, the shipowner will be entitled to receive
reloading and restowing cargo, fuel or stores payment for freight only once the cargo has
are allowable as general average, then (and been delivered at destination. It follows that if
only then) can be allowed in general average the cargo is not delivered at destination, the
any damage which is caused to the cargo, shipowner does not receive that freight.
fuel or stores during those operations.
If the cargo is lost as a result of a general
Anything falling outside these criteria would average sacrifice on the voyage, then the
form a particular average loss on cargo. As a shipowner is entitled to claim as general
surveyor, you might have to advise the average any freight that is lost as a result
average adjuster as to any division in costs of (see the tale at the start of this chapter).
cargo damage into these categories.
When calculating the amount of freight to be
Rule XIII – Deductions from cost of repairs made good in such circumstances, deduction
must be made from the gross freight lost of
This rule contains detailed provisions relating any expenses the shipowner has saved (e.g.
to repairs of general average damage to the the cost of discharging that cargo, had it been
ship and need not be examined further here. delivered, where those costs would have
Rule XIV – Temporary repairs been borne by the shipowner). Our simple
story did not factor this element in but the
If it is necessary to effect temporary repairs to logic is quite clear – if we allowed the
the ship for the common safety, or of general shipowner to receive back credit for costs
average damage to the ship, the cost of that did not have to be incurred, they would
those repairs will be allowable as general end up better off because of the sacrifice
average damage. made.

Sometimes it is possible to effect permanent Rule XVI – Amount to be made good for
repairs at a port of refuge of accidental (ie cargo lost or damaged by sacrifice
non-general average) damage to a ship, but
the shipowner decides instead to effect This must be based on the value the goods
temporary repairs of that damage in order to would have had if they had been delivered at
complete the voyage, deferring permanent destination. In practice, this will be based on
repairs to a more convenient time. In such the CIF invoice value of the goods, from
circumstances, carrying out temporary which must be deducted any freight which
repairs will shorten the length of stay at the would have been payable only on delivery of
port of refuge, thereby reducing the the goods, but which is saved by them having
allowances in general average that would been sacrificed. Where cargo damaged by
have been made under Rules X and XI. This sacrifice (e.g. wet damaged during fire-
helps everyone who would be contributing to fighting) is sold, the amount to be made good
those costs, not just the shipowner. will be the sound value, calculated as per the
previous sentence, less the net proceeds of
sale (i.e. after deduction of sale charges and
 118

any other costs necessarily incurred to effect cargo in another hold which is estimated at
the sale). $10,000

Example one CIF value $ 100,000

Less freight $ 1,000
Totally sacrificed cargo Subtotal $ 99,000
CIF value $1,000, freight payable $10 Less damage suffered $ 55,000
Amount to be made good $1,000 - $10 = Subtotal $ 44,000
$990 Add back made good $ 10,000
Total contributory value $ 54,000
Example two
Cargo sold short of destination will contribute
Cargo suffering sacrifice by wet damage based on net proceeds, plus any damage
which is made good as general average.
CIF value $1,000, freight payable $10
Cargo arrives, although damaged so the Freight
freight will have to be paid – hence full cargo
value can be the starting point. For freight that is at the risk of the shipowner,
this will be:
Gross proceeds of sale $600, with sale costs
being $10, hence net proceeds of sale are The gross amount of the freight which
$590 is at risk
Less: Any charges the shipowner would not
Amount to be made good is $1,000 - $590 = have incurred in earning that freight
had the ship and cargo been totally
$410
lost at the time of the general average
Rule XVII – Contributory values act
Plus: Any freight lost that is made good as
Contributory values are the values of the general average.
property to be used when apportioning the
total general average allowances between Example
the parties, i.e. how much each party will
contribute towards the total general average The shipowner is expecting to earn $10,000
sacrifices and expenditures. in freight for delivery of ten parcels, each of
which earns freight of $1,000. The discharge
Cargo costs liable for payment at the port are
$5,000. No cargo has had to be sacrificed
For cargo, this will be: during the general average.
The CIF invoice value of the goods Gross freight at risk $ 10,000
Port costs that would have been
$ 5,000
Less: Any freight that is at the risk of the saved
shipowner Subtotal $ 5,000
Not made good as no cargo and
Less: Any damage suffered by the goods hence no freight was sacrificed.
before or at the time of discharge Contributory value $ 5,000
(which could be particular average or
general average in nature)

Plus: Any of this damage which is made

good in general average.

Example

Cargo is involved in an incident which gives

rise to general average. There is some fire
damage to the cargo in one hold which is
estimated at $45,000 and some water
damage caused by fire-fighting caused to
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Ship Items that do not contribute

For the ship, this will be: Mail, passengers’ luggage, personal effects
and accompanied private motor vehicles do
The sound value of the ship at not contribute in general average under the
destination (usually assessed by a York- Antwerp Rules.
professional valuer)
Less: The cost of repairing any damage to Rule XVIII – Damage to ship
the ship
Plus: Any of the cost of repairs that is made Where the ship has suffered damage that is
good as general average.
allowable as general average, this is
effectively quantified as follows:
(The value of the ship will include the
shipowner’s bunkers remaining on board at ■ If the damage is repaired or replaced, the
the end of the adventure, except any bunkers actual reasonable cost of repairs.
loaded subsequently to the general average
act, and any bunkers sacrificed as a general ■ If the damage is not repaired or replaced,
average act.) the reasonable depreciation in the value of
the ship arising from such damage.
Example
■ If the ship is an ATL, or a CTL by reason of
A ship grounds and is refloated with the help the cost of repairs exceeding the value of the
of tugs. The surveyor inspects her bottom ship when repaired:
and identifies that the costs of repairing the
original grounding damage are $1,000,000 Estimated sound value, if repaired
and the costs of repairing the refloating Less: The estimated cost of repairing the
damage are $750,000. damage
Plus: The estimated amount thereof which
Sound value of ship $ 10,000,000 relates to repairing general average
Less all damage $ 1,750,000 damage
Less: The value of the ship in her damaged
Subtotal $ 8,250,000 state, measured by the proceeds of
Add back made good for sale, if any.
$ 750,000
general average
Total contributory value $ 9,000,000 Example of CTL

Ship is insured for $1,000,000 and suffers

Time charterer’s bunkers particular average damage of $800,000 and
general average damage of $300,000. She is
For time charterer’s bunkers (where actually sold after the CTL declaration for
involved), this will be: $150,000.

The value of any bunkers remaining Estimated sound value if repaired $ 1,000,000
on board at the end of the adventure
Plus: Less all costs of repairing the $ 1,100,000
The value of any bunkers sacrificed
as a general average act. damage
- $ 100,000

Plus general average damage $ 300,000

Other equipment
that will be made good
For radio or navigational equipment owned Subtotal $ 200,000
by a party other than the shipowner, this will Less the proceeds of sale $ 150,000
be:
Allowance in general average $ 50,000
The value of that equipment at the
end of the adventure
Plus: Any damage thereto which is made
good as general average.
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Rule XIX – Undeclared or wrongfully It is difficult for anyone who is

declared cargo not a practising, professional
average adjuster to fully
If goods are loaded without the knowledge of understand how all of the
the shipowner, or are wilfully misdescribed at above York-Antwerp Rules
the time of shipment, their loss or damage by should be applied in practice.
general average sacrifice will not be made For a Lloyd’s Agent studying
good in general average. for this examination, the
involvement in general
However, such goods, if saved, will still have
average in practice is likely to
to contribute to the general average losses of
be in one of the following
other parties.
roles:
Goods which have been wrongfully declared
on a shipment at a lower value than their real ■ As a surveyor appointed to
value must contribute to the general average survey a cargo which has
at their real value, BUT any allowance in sustained damage in a general
general average for loss or damage to those average case.
goods will be based on their (lower) declared
value. ■ As a surveyor appointed to
survey a ship which has
Such circumstances as are envisaged by this sustained damage in a general
rule are rarely encountered in practice. average case.

Rule XX – Provision of funds ■ As a surveyor appointed to

act ‘in the general interest’ in a
Where a party to the adventure makes a general average case.
general average disbursement (an outlay of
money), that party is entitled to a commission ■ As a surveyor appointed to
in general average of 2% of the amount of supervise the discharge,
the disbursement. storing and reloading of cargo
This does not apply to the wages and at a port of refuge.
maintenance of the crew, nor to any fuel and ■ As an adviser to a principal
stores not replaced during the voyage. (usually a cargo interest)
whose property is involved in a
Rule XXI – Interest on losses made good general average case.
in general average (Acting as a surveyor in one of
the above roles is dealt with
All allowances in general average attract later in this chapter.)
interest at the rate of 7% per annum, payable
to the party who has borne the loss or For the purposes of this
incurred the expenditure. For damage or examination, candidates are
sacrifice this is calculated from the date of the expected to understand the
end of the adventure, and for expenditure basic principles of general
from the date the expenditure was incurred. average as applied under the
In both cases, the interest is calculated up to York-Antwerp Rules. Some
three months after the issue of the general simple example adjustments
average adjustment. Due allowance would be and exercises appear at the
made for any payments on account made end of this chapter which will
prior to the issue of the adjustment by any of give the candidate a clear idea
the contributing interests. of the extent to which he or
she will be tested in the
Rule XXII – Treatment of cash deposits examination.
This rule relates to the treatment of any cash
deposits taken as general average security
from cargo interests.
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9.4. Salvage General average and salvage – the

similarities
The previous section dealt with the York-
Antwerp Rules 1994. Later in this chapter, we Both general average and salvage are
will deal with certain provisions of the York- designed to achieve the same goal: to rescue
Antwerp Rules 2004. In this section, we will the adventure from a position of peril that
first tackle the subject of salvage, as some threatens to destroy all of the property
important changes in the York-Antwerp Rules involved in it. When the general average act
2004 relate to the treatment of salvage or the salvage service is successful, the
charges. The candidate will better understand property that has been saved must make a
those changes if the subject of salvage is rateable contribution to the sacrifices and
studied first. expenditure allowed in general average or to
the costs of the salvage operation, based on
the value of the property saved.

General average and salvage – the differences

General average Salvage

Intentional act committed by one of the parties Voluntary act done by someone outside the
involved in the adventure. adventure.

Contributions in general average are calculated at Contributions towards salvage are calculated at the
the time and place the adventure ends, which will time and place that the salvage services end, which
be when all the cargo has been discharged at final may be far earlier. Salvage services will end when
destination. the property is handed back to the owners by the
salvors, which might be when a ship is refloated.

General average contributory values are enhanced There is no concept of made good in salvage and
by made good. proportions payable are measured on actual value.

The shipowner has a lien on cargo until satisfactory The salvor has a lien for reward against all
security has been provided by all interests in contributory interests in relation to their obligation to
relation to their obligations in general average once pay their share of the award once agreed or
quantified – even if the shipowner has not suffered assessed.
any sacrifice or had to incur any expenditure.

The shipowner will be exposed to claims from cargo Therefore, the salvor will not return the property
interests who have made sacrifice if security has (ship, cargo, etc) to the owners until receiving
failed to be obtained from other interests who then suitable security, which may be in the form of an
refuse to pay their share of any contributions. LOF guarantee for example

Salvage in practice agreement is reached, by the courts or by

some other arbitration process. The size of
It is recognised in maritime law that, when a the award is normally influenced by factors
salvor commits their equipment and such as the values of the property saved, the
personnel to a salvage operation in order to degree of risk the salvor had to take, the skill
save maritime property from potential the salvor exercised in saving the property
destruction, they should be rewarded for their and the level of success achieved.
risk and efforts if they successfully save that
property or a part of it. The salvor earns Lloyd’s Open Form (LOF)
nothing if their efforts are unsuccessful. Thus,
salvage proper operates on a ‘no cure – no Lloyd’s Standard Form of Salvage
pay’ basis. The amount the salvor should be Agreement, more commonly known as
paid is agreed after the event either by Lloyd’s Open Form, has been in existence
negotiation between the parties or, if no since the early part of the twentieth century.
 122

Although it is a contract, it preserves the ‘no either uphold it or amend it upwards or

cure – no pay’ basis of salvage because downwards.
while it provides for a mechanism to assess
the payment or consideration for the contract, Under the most recent Salvage Convention
it does not specifically provide what the (the terms of which are given effect by law in
consideration will be. LOF is by no means most maritime nations, including England), it
used in every salvage case, but it remains was agreed that, when assessing a salvage
the agreement of choice in most significant award, the courts or arbitrator could take into
salvage operations. account the benefits the salvage service has
had in preventing or minimising damage to
When a master agrees with the salvor to the environment. This was dealt with in two
enter into a salvage service under LOF, not articles in the convention, Articles 13 and 14.
only does this bind the ship to the agreement Article 13 effectively says that, where the
but also binds the cargo in the master’s salvor has saved property and the value of
capacity as an ‘agent of necessity’ at the time the property saved is large enough to bear it,
of an emergency. the enhancement or uplift for the salvor’s
efforts in preventing or minimising pollution
LOF is administered by the Salvage shall simply form part of the salvage award
Arbitration Branch (SAB) at Lloyd’s, which that is contributed to by all the salved
forms part of the Lloyd’s Agency Department. property. However, where there is no
When LOF is signed, the SAB will normally property saved, or where the value of the
collect salvage security from all of the salved salved property is not high enough to bear an
property on behalf of the salvor. This will be uplift for helping to protect the environment,
completely separate from any general the court or arbitrator will make an award for
average security that is also collected from Special Compensation under Article 14 in
cargo interests (usually by the average respect of these environmental
adjuster on the case). In practice, where considerations. An award for Special
cargo is insured, it is usually the cargo Compensation under Article 14 falls on the
insurer who provides the security. shipowner alone (and in practice is paid by
their P&I Club rather than their hull and
The owners of the salved property will then machinery underwriters, who will normally
enter into negotiations with the salvors in an
pay for Article 13 salvage awards).
endeavour to agree the amount the salvor
should be rewarded for their efforts in saving It sometimes happens that some of the
the property. Such discussions are usually salved property owners reach agreement with
conducted by the legal representatives of the the salvors during the discussion stage but
respective parties. In many cases, an others do not. An arbitrator may then be
agreement is reached and the parties settle needed to make an award that will be binding
amicably. only on those interests who did not reach an
amicable agreement. This may be at a lower
At any stage in the discussions, any of the or higher level than the agreement reached
parties can request that the SAB appoints an amicably by those parties who settled outside
arbitrator (invariably a senior barrister from of arbitration. And therein lies one of the
the Admiralty Bar in London) to assess the anomalies that has been the subject of some
circumstances and make an award that will irritation for many years and it arises because
be binding on all the parties who have not of the differences between salvage and
reached an amicable settlement with the
general average.
salvors. Once an award is made in this way,
the SAB will then collect the due proportions When looking at Rule VI of the York-Antwerp
of that award from the salved property Rules above, it was mentioned that the
interests, releasing the security to the parties payments made by parties on account of
after payment. Any of the parties to the award salvage (other than any Special
can make an appeal against the original Compensation under Article 14 of the
award, in which case an appeal arbitrator is Salvage Convention) will be admitted as an
then appointed to reassess the award and allowance in general average. Once all of the
salvage payments have been included in
 123

general average, the total general average is ■ If nothing is provided within 12 months of
then apportioned over the contributory values the termination of the common maritime
at the end of the adventure. It follows that any adventure, the adjuster can estimate
party that has reached a favourable contributions on the basis of information that
settlement with the salvor will completely lose is available.
the advantage of that favourable settlement
once it is reapportioned in general average. ■ Parties will be provided with the estimates
and have two months to challenge them – but
For this reason, when the York-Antwerp they can only challenge on the grounds that
Rules were revised in 2004, it was agreed to they are manifestly incorrect.
remove salvage from general average
completely and leave the salvage payments ■ If any party chasing other parties for
‘where they lay’ and this now makes it an recoveries relating to matters within the GA,
appropriate point at which to examine the then the adjuster must be told and given
York-Antwerp Rules 2016. details of any recovery received within two
months of any recovery funds being received.
9.5. The York-Antwerp Rules 2016
Salvage Rule VI
The basic idea of the revision to the York
Antwerp rules completed in 2016 was to Salvage rewards may not now form part of
rebalance the position between interests the GA pot and will be handled separately
which was the perceived issue with 2004. In according to the rules on Salvage. However
addition, a set of non-binding guidelines have salvage rewards can be put back into the GA
been created to assist those parties having to pot for reallocation according to the rules of
deal with General Average matters for the GA if the following situations arise.
first time.
■ Further accident resulting in loss/damage
Rule B to property which reduces the contributory
values and makes a large difference between
Additional text has been added to this rule to salved and Contributory values.
make clear that the separation of vessels in a
tug and tow situation for the safety of one or ■ Significant GA sacrifices.
more or those vessels will be a General
Average act. ■ Salved values are incorrect which has led
to incorrect apportionment of salvage
Additionally, it is made clear that when expenses.
vessels involved in this situation go to a port
of refuge, allowances under the Rules can be ■ Any of the parties to the salvage has
made in relation to each vessel but the actually paid a proportion of salvage due from
allowances will cease when the common another party.
maritime adventure ends – which is a ■ A significant proportion of parties have
fundamental concept in GA. satisfied the salvage claim on substantially
Rule E different terms.

This amendment makes clear what the This decision will be made by the adjuster
obligations of the various parties are to taking all the circumstances into account.
provide information to the adjuster and what Rule XI – Wages and Maintenance and
the adjuster can do, should such information other expenses in a port of refuge
not be provided.
There are two areas of clarification in the new
■ All parties should provide information text to this rule.
about any contributory interests, and about
any loss or expense they wish others to ■ Allowances for port charges can include all
contribute to, as soon as possible. customary or additional expenses incurred for
the common safety or to enter/remain at a
port of refuge.
 124

■ Costs relating to movement of cargo, fuel Now set at an amount linked to 4% above
or stores includes handling on board. LIBOR (London Interbank offering rate) for a
stated period.
Rule XVI – Sacrificial damage to cargo
Rule XXII – Cash deposits
This rule now makes clear that the
commercial invoice can be taken by the Sums shall be sent to the adjuster who will
adjuster to be the value at time of discharge deposit them in a special account, ideally
for cargo notwithstanding where the final earning interest, in the name of the adjuster.
delivery point is under the contract of
carriage. The account will be separate from any other
and ideally be a trust account or whatever
Rule XVII – Contributory values similar concept exists in the jurisdiction in
question.
This rule reinforces the point about the usage
of the invoice in rule XVI but also allows the ■ Rules always subject to what is permitted
adjuster to exclude certain cargo from in any particular jurisdiction,
contributing to GA should the adjuster
consider that the cost of including it within the ■ The rules on time do not apply to claims by
adjustment is disproportional to the amount it parties on their insurers,
will contribute.
Rule XXIII – Time Bar
This is an important practical consideration in
that for containerised cargo, often at least This rule was introduced in 2004, and kept in
10% of a shipload is uninsured and is of the 2016 update:
relatively low value so the time and effort ■ a basic one-year time bar from the date of
involved in obtaining security and tracking adjustment being issued to claim
down the appropriate parties involved is contributions,
unduly costly.
■ a final six year time bar from the end of
In reality, many hull insurance policies have the common maritime adventure,
within them a GA absorption clause which
means that the hull insurers will pay up to an ■ parties can agree to extend if they require,
agreed value in GA rather than have the
owner go through the process of collecting ■ the rules are always subject to what is
contributions. permitted in any particular jurisdiction,

The final change to Rule XVII is in relation to ■ the rules on time do not apply to claims by
the separation out of salvage awards. parties on their insurers.

If the salvage is being dealt with outside GA, 9.6. Miscellaneous points on general
then any deductions to the various average and salvage
contributory values for GA can only be made
to the value of the amount paid to salvors This section deals with other points of
including interest and costs. importance which do not fall under the
previous headings
Finally it is made clear that the types of cargo
that do not contribute to GA include Declaration of general average
accompanied personal effects (where in the
1994 rules it just said personal effects). The term is often used that general average
has been ‘declared’. In many minds, this fixes
Rule XX – Provision of funds a notion that the shipowner needs to make
some official declaration or notification
The previous allowance of 2% on GA according to prescribed rules. While there
disbursements has been removed. may be some peculiar procedures to be
followed in a few countries around the world,
Rule XXI – Interest in practice there is generally no legal
requirement for the shipowner to make any
 125

kind of official ‘declaration’ or announcement General average security is given to the

before a situation of general average can shipowner as it is the duty of the shipowner to
legally exist. ensure that a general average adjustment is
drawn up, even where the only parties with a
General average is recognised by all major claim in general average are cargo interests.
maritime nations, and a situation of general The shipowner invariably appoints a
average exists as a matter of fact as soon as professional average adjuster and, in
the requirements for general average are met practice, it will be that average adjuster who
(ie that an intentional sacrifice or expenditure collects the security on behalf of the
is made or incurred for the common safety, shipowner. This is normally in the form of an
etc). The owners of property will know of the Average Bond, given by the owner of the
existence of the general average as soon as cargo, and an Average Guarantee, given by
they are asked to provide security in order to the insurer of the cargo (or a cash deposit
obtain delivery of their property at destination where the cargo is not insured). Both the
(or most likely earlier than that in the modern bond and the guarantee are promises to pay
world of virtually instant communication). any general average contribution properly
due once the general average has been
Salvage and general average security adjusted. Unlike salvage security, general
Salvage security has to be given for a average security is not given for a specific
specified amount. This means that the salvor amount. In practice, the security is limited to
has to estimate what they believe they should the full arrived value of the cargo. Security for
be awarded for their efforts and set the general average becomes due on delivery of
amount of security requested at an the property at destination (or other
appropriate level. The salvor will demand termination of the adventure).
their security as soon as the salvage service
has terminated.

CASUALTY

Salvage security to General average

security given to ship
the salvor from the interests via the
various parties average adjuster

Average Bond from

cargo owners
Provided by Council
of Lloyd’s for LOF

Average Guarantee
from insurers or cash
Who then take deposits for uninsured
countersecurity from cargo
various insurers

The surveyor’s role in general average A cargo surveyor may be appointed by a

cargo insurer to inspect damage that has
been sustained by one or more cargoes that
 126

are insured by that insurer. In some general The contribution to general average payable
average cases, a cargo surveyor is appointed by the property involved in the adventure is
(usually by the average adjuster on behalf of (except in very limited circumstances)
the shipowner) to act ‘in the general interest’ covered under a standard marine insurance
and may be surveying all the cargo or so policy, whether on ship, cargo or freight.
much of it as may have been damaged in the
casualty. In either case, the surveyor will not Where the damage to the property is of a
only comment on the cause, nature and general average nature (i.e. a general
extent of the damage sustained but should average sacrifice such as jettison of cargo or
also enable their principal to identify how damage done to the ship by refloating
much of that damage, if any (and consequent operations), the Assured may claim that from
extra charges), were directly caused by a their own insurer in full under the policy and
general average act. does not have to wait until a general average
adjustment is produced before being
The following types of loss or damage are reimbursed. Where the insurer has paid such
those likely to be sustained by cargo as a a claim, the general average adjuster will give
result of a general average act: them due credit in the adjustment –
effectively like the insurer making a recovery
■ Jettison in order to refloat the vessel. from the other parties.
■ Damage during lightering and subsequent Where the property covered by the policy is
reloading in order to refloat a vessel. under- insured, the amount recoverable
under the policy in respect of the contribution
■ Damage during handling on board in payable to general average (absent any
connection with either of the above. agreement in the policy to the contrary) is
■ Damage by water or other measures taken reduced in proportion to the under-insurance.
to extinguish a fire on board the ship. It is always important to remember that the
parties’ legal obligations in relation to general
■ Damage during the act of unloading, average contributions in particular are
storing or reloading of cargo at a port of completely separate from any insurance they
refuge, where the cost of those measures is have, and they will not have much success in
allowable in general average under Rule X of trying to avoid payment of their obligations
the York-Antwerp Rules. just because they do not have adequate
insurance in place.
It is very important that the surveyor
distinguishes in their report any damage that Any amount in relation to a general average
has been sustained purely by accidental contribution that has to be made can also be
means unconnected with the general average claimed from most insurance policies, but
act and damage that has resulted directly only to the extent of that contribution. Hence
from the general average act. claims cannot really be made on insurers
until the extent of that contribution in financial
Where a surveyor is appointed in the general terms is known, although early warning to the
interest to oversee the discharge, storing and insurers will always be prudent, especially if
reloading of cargo at a port of refuge, they you want their help with guarantees.
should clearly identify any damage that is
caused to the cargo during those acts as well 9.7. General average example
as noting any other damage in existence
which cannot be attributed to those acts. The General average adjustments are nearly
surveyor may also be asked to examine the always prepared by professional average
invoices covering the costs of unloading, adjusters and are often very lengthy and
storage and reloading and to approve them complicated documents. It takes years of
as being fair and reasonable. training and experience to become a
competent general average adjuster, and it is
General average and marine insurance unlikely that a Lloyd’s Agent would be
required to produce a general average
adjustment, except where the case is a
 127

relatively simple one involving only local average, i.e. the element attributable to trying to
interests. The following example is not refloat her).
designed to convert candidates studying this Cost of repairs to ship’s engine – $ 25,000
examination into instant professional average (damage caused during refloating
operations)
adjusters. The purpose is to reinforce the
Discharge, storing and reloading $ 25,000
basic principles of general average dealt with at the port of refuge
above and to familiarise candidates with a Wages and maintenance, fuel and $ 50,000
typical (though simplified) presentation of a stores and port of refuge
statement of general average. expenses allowable under Rules
X and XI
Example Quantity of cargo jettisoned 200 tons

(In this example the York-Antwerp Rules The value of the ship in sound condition is
1994 apply but see notes at the end about $5,000,000.
what the impact would be should the 2016
The CIF value of the cargo is $500,000, with
rules apply.)
the freight payable on loading and non-
A ship carrying 5,000 tons of bulk cargo runs returnable in any event.
aground on rocks in a storm. Salvage tugs
are engaged on a daily-hire basis to assist
the vessel to refloat.

As part of the refloating operation, part cargo

is jettisoned and the ship’s engines are used
at full reverse power – consider whether this
might be a sacrifice on the part of the ship –
does it satisfy the requirements?

The vessel is eventually refloated and

proceeds to a port of refuge under her own
power.

At the port of refuge, the cargo is discharged

and stored in a warehouse while the ship
goes into drydock for repairs to the hull and
then reloaded after the repairs have been
completed. Consider whether this activity has
benefited everyone and whether therefore it
falls for consideration in general average.

There is no loss or damage to cargo as a

result of unloading, storing or reloading. After
repairs, the vessel proceeded safely to
destination – also known as the time and
place that the adventure ends.

The following loss/damage and expenses

were incurred:
Cost of salvage tugs $ 50,000
Cost of repairs to the ship’s $ 300,000
bottom
(Of this, $100,000 was caused when running
aground and $200,000 was directly attributable
to efforts to refloat – this is important to
distinguish as only part of this will be general
 128

For this exercise, the adjustment of the

general average is shown as a guideline on
how to set out the figures in a logical fashion.
Interest and commission has been ignored
and figures are rounded to the nearest whole
number.
Disburse- General
Remainder
ments, etc. average
$ Shipowner’s Disbursements and Allowances $ $
50,000 Cost of salvage tugs
Allow to general average: IN FULL – tugs engaged to assist
the vessel to refloat [Rule VI]
50,000
100,000 Cost of repairs to grounding damage
Allow to general average: NIL – accidental damage caused
when the vessel ran aground
100,000
200,000 Cost of repairs to refloating damage
Allow to general average: IN FULL – damage caused during
efforts to refloat the vessel [Rule II]
200,000
25,000 Cost of repairs to engine damage
Allow to general average: IN FULL – damage caused when
engines were used to assist refloating operations [Rule VII]
25,000
375,000 275,000 100,000
50,000 Port of refuge expenses 50,000
25,000 Discharging, storing and reloading cargo at port of
refuge
(Allowances made in accordance with Rules X and XI) 25,000
450,000
350,000 100,000

Contributory value of ship

Value in sound condition $5,000,000
Deduct: loss / damage
(grounding damage, refloating damage, engine repairs and $375,000
cost of salvage)
$4,625,000
Add: made good
$275,000
(everything as above apart from the grounding damage)

$4,900,000
 129

Loss/damage to cargo Loss/damage Made good

$ $
5,000 tons cargo – CIF Value - $500,000
200 tons jettisoned – CIF Value in proportion 20,000
Allow to general average: IN FULL – Cargo jettisoned for the common 20,000
safety during efforts to refloat [Rule II]

20,000 20,000
Contributory value of cargo
CIF Value $500,000
Deduct: loss/damage $20,000
$480,000
Add: made good $20,000
Contributory value $500,000

Apportionment of general average

Ship: Allowances in general average $350,000
Cargo: Allowances in general average $20,000
(i.e. total general average pot to be apportioned) $370,000
Apportioned:
Ship: Contributory value $4,900,000 pays
$335,741
Cargo: Contributory value $500,000 $34,259
$5,400,000 pays
$370,000
Balance in general average

Shipowners: Receive their disbursements and allowances in GA $350,000

Pay proportion of general average attaching to ship $335,741
Receive on balance $14,259
Cargo Pay proportion of general average attaching to cargo $34,259
interests:
Receive their allowances in general average $20,000
Pay on balance $14,259
 130

Notes damage to ship’s engines sustained while

they are being worked can be allowed as
1 The damage caused to the ship when general average.
running aground is not general average – it is
accidental damage that was not intentionally 3 A general average adjustment always
incurred for the common safety. The damage finishes with a balance showing who pays
caused during efforts to refloat is general and who receives. Where there are multiple
average damage – the refloating operation cargo interests ‘Cargo’ will usually be shown
was an intentional act aimed at rescuing the as a single item in the balance and a
property from peril. In practice, the hull separate schedule will follow showing how
surveyor has the often-difficult task of having much each individual cargo interest will pay
to differentiate between damage that or receive.
happened when the vessel ran aground, and
any new and separate damage solely 4. If this adjustment was being worked out
attributable to the refloating efforts. under the 2016 rules, then the USD 50,000
for salvage tugs would not form part of the
2 The damage to the ship’s engines was GA pot to be allocated as none of the criteria
caused when the engines were used in set out in Rule VI (b) appear to apply
efforts to refloat the ship. A ship’s engines according to the facts set out – unless the
are not intended to be used in this way; this is adjuster in their discretion considers the
therefore an extraordinary and intentional use sacrifice made by the ship of the refloating
of the engines to try to rescue the adventure damage to be significant enough to trigger
from peril and the cost of repairing this the discretion to bring salvage back into the
damage can be allowed as general average. overall GA pot.
This is the only circumstance in which
 131

.
Appendix
 132

Contents

Institute Cargo Clauses (A) (1/1/09) 154

Institute Cargo Clauses (B) (1/1/09) 159

Institute Cargo Clauses (C) (1/1/09) 164

York-Antwerp Rules 1994 169

 133

Institute Cargo Clauses (A) (1/1/09)

RISKS COVERED

Risks

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

General Average

2. This insurance covers general average and salvage charges, adjusted or determined
according to the contract of carriage and/or the governing law and practice, incurred to avoid or in
connection with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6
and 7 below.

“Both to Blame Collision Clause”

3. This insurance indemnifies the Assured, in respect of any risk insured herein, against liability
incurred under any Both to Blame Collision Clause in the contract of carriage. In the event of any
claim by carriers under the said Clause, the Assured agree to notify the Insurers who shall have
the right, at their own cost and expense, to defend the Assured against such claim.

EXCLUSIONS

4. In no case shall this insurance cover

4.1 loss damage or expense attributable to wilful misconduct of the Assured

4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the
subject-matter insured

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)

4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured

4.5 loss damage or expense caused by delay, even though the delay be caused by a risk
insured against (except expenses payable under Clause 2 above)

4.6 loss damage or expense caused by insolvency or financial default of the owners managers
charterers or operators of the vessel where, at the time of loading of the subject-matter
insured on board the vessel, the Assured are aware, or in the ordinary course of business
should be aware, that such insolvency or financial default could prevent the normal
prosecution of the voyage
This exclusion shall not apply where the contract of insurance has been assigned to the
party claiming hereunder who has bought or agreed to buy the subject-matter insured in
good faith under a binding contract

4.7 loss damage or expense directly or indirectly caused by or arising from the use of any
weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or
radioactive force or matter.
 134

5.

5.1 In no case shall this insurance cover loss damage or expense arising from

5.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of
the subject-matter insured, where the Assured are privy to such unseaworthiness or
unfitness, at the time the subject-matter insured is loaded therein

5.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter
insured, where loading therein or thereon is carried out prior to attachment of this
insurance or by the Assured or their employees and they are privy to such unfitness at
the time of loading.

5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to
the party claiming hereunder who has bought or agreed to buy the subject-matter insured in
good faith under a binding contract.

5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and
fitness of the ship to carry the subject-matter insured to destination.

6. In no case shall this insurance cover loss damage or expense caused by

6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any
hostile act by or against a belligerent power

6.2 capture seizure arrest restraint or detainment (piracy excepted), and the consequences
thereof or any attempt thereat

6.3 derelict mines torpedoes bombs or other derelict weapons of war.

7. In no case shall this insurance cover loss damage or expense

7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots
or civil commotions

7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions

7.3 caused by any act of terrorism being an act of any person acting on behalf of, or in
connection with, any organisation which carries out activities directed towards the
overthrowing or influencing, by force or violence, of any government whether or not legally
constituted

7.4 caused by any person acting from a political, ideological or religious motive.

DURATION

Transit Clause

8.

8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter
insured is first moved in the warehouse or at the place of storage (at the place named in the
contract of insurance) for the purpose of the immediate loading into or onto the carrying
vehicle or other conveyance for the commencement of transit, continues during the ordinary
course of transit and terminates either

8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the
final warehouse or place of storage at the destination named in the contract of
insurance,
 135

8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any
other warehouse or place of storage, whether prior to or at the destination named in
the contract of insurance, which the Assured or their employees elect to use either for
storage other than in the ordinary course of transit or for allocation or distribution, or

8.1.3 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 or

8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter
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 subject-matter insured is to be forwarded to a
destination other than that to which it is insured, this insurance, whilst remaining subject to
termination as provided in Clauses 8.1.1 to 8.1.4, shall not extend beyond the time the
subject-matter insured is first moved for the purpose of the commencement of transit to
such other destination.

8.3 This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1
to 8.1.4 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 carriers under the
contract of carriage.

Termination of Contract of Carriage

9. If owing to circumstances beyond the control of the Assured either the contract of carriage is
terminated at a port or place other than the destination named therein or the transit is otherwise
terminated before unloading of the subject- matter insured as provided for in Clause 8 above, then
this insurance shall also terminate unless prompt notice is given to the Insurers and continuation of
cover is requested when this insurance shall remain in force, subject to an additional premium if
required by the Insurers, either

9.1 until the subject-matter insured is sold and delivered at such port or place, or, unless
otherwise specially agreed, until the expiry of 60 days after arrival of the subject-matter
insured at such port or place, whichever shall first occur,

or

9.2 if the subject-matter insured is forwarded within the said period of 60 days (or any agreed
extension thereof) to the destination named in the contract of insurance or to any other
destination, until terminated in accordance with the provisions of Clause 8 above.

Change of Voyage

10.

10.1 Where, after attachment of this insurance, the destination is changed by the Assured, this
must be notified promptly to Insurers for rates and terms to be agreed. Should a loss occur
prior to such 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.

10.2 Where the subject-matter insured commences the transit contemplated by this insurance
(in accordance with Clause 8.1), but, without the knowledge of the Assured or their
employees the ship sails for another destination, this insurance will nevertheless be
deemed to have attached at commencement of such transit.
 136

CLAIMS

Insurable Interest

11.

11.1 In order to recover under this insurance the Assured must have an insurable interest in
the subject-matter insured at the time of the loss.

11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss
occurring during the period covered by this insurance, notwithstanding that the loss
occurred before the contract of insurance was concluded, unless the Assured were aware
of the loss and the Insurers were not.

Forwarding Charges

12. Where, as a result of the operation of a risk covered by this insurance, the insured transit is
terminated at a port or place other than that to which the subject-matter insured is covered under
this insurance, the Insurers will reimburse the Assured for any extra charges properly and
reasonably incurred in unloading storing and forwarding the subject-matter insured to the
destination to which it is insured.

This Clause 12, which does not apply to general average or salvage charges, shall be subject to
the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from
the fault negligence insolvency or financial default of the Assured or their employees.

Constructive Total Loss

13. No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter
insured is reasonably abandoned either on account of its actual total loss appearing to be
unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter
insured to the destination to which it is insured would exceed its value on arrival.

Increased Value

14.

14.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured
under this insurance the agreed value of the subject-matter insured shall be deemed to be
increased to the total amount insured under this insurance and all Increased Value
insurances covering the loss, and liability under this insurance shall be in such proportion
as the sum insured under this insurance bears to such total amount insured.

In the event of claim the Assured shall provide the Insurers with evidence of the amounts
insured under all other insurances.

14.2 Where this insurance is on Increased Value the following clause shall apply:
The agreed value of the subject-matter insured shall be deemed to be equal to the total
amount insured under the primary insurance and all Increased Value insurances covering
the loss and effected on the subject-matter insured by the Assured, and liability under this
insurance shall be in such proportion as the sum insured under this insurance bears to
such total amount insured.

In the event of claim the Assured shall provide the Insurers with evidence of the amounts
insured under all other insurances.

BENEFIT OF INSURANCE

15. This insurance

 137

15.1 covers the Assured which includes the person claiming indemnity either as the person by
or on whose behalf the contract of insurance was effected or as an assignee,

15.2 shall not extend to or otherwise benefit the carrier or other bailee.

MINIMISING LOSSES

Duty of Assured

16. It is the duty of the Assured and their employees and agents in respect of loss recoverable
hereunder

16.1 to take such measures as may be reasonable for the purpose of averting or minimising
such loss, and

16.2 to ensure that all rights against carriers, bailees or other third parties are properly
preserved and exercised and the Insurers will, in addition to any loss recoverable
hereunder, reimburse the Assured for any charges properly and reasonably incurred in
pursuance of these duties.

Waiver

17. Measures taken by the Assured or the Insurers with the object of saving, protecting or
recovering the subject-matter insured shall not be considered as a waiver or acceptance of
abandonment or otherwise prejudice the rights of either party.

AVOIDANCE OF DELAY

18. It is a condition of this insurance that the Assured shall act with reasonable despatch in all
circumstances within their control.

LAW AND PRACTICE

19. This insurance is subject to English law and practice.

Note

Where a continuation of cover is requested under Clause 9, or a change of destination is notified

under Clause 10,

there is an obligation to give prompt notice to the Insurers and the right to such cover is dependent
upon compliance with this obligation.

© Copyright: 11/08 – Lloyd’s Market Association (LMA) and International Underwriting Association
of London (IUA).
CL382
01/01/2009
 138

Institute Cargo Clauses (B) (1/1/09)

RISKS COVERED

Risks

1. This insurance covers, except as excluded by the provisions of Clauses 4, 5, 6 and 7 below,

1.1 loss of or damage to the subject-matter insured reasonably attributable to

1.1.1 fire or explosion

1.1.2 vessel or craft being stranded grounded sunk or capsized

1.1.3 overturning or derailment of land conveyance

1.1.4 collision or contact of vessel craft or conveyance with any external object other than
water

1.1.5 discharge of cargo at a port of distress

1.1.6 earthquake volcanic eruption or lightning,

1.2 loss of or damage to the subject-matter insured caused by

1.2.1 general average sacrifice

1.2.2 jettison or washing overboard

1.2.3 entry of sea lake or river water into vessel craft hold conveyance container or place of
storage,

1.3 total loss of any package lost overboard or dropped whilst loading on to, or unloading from,
vessel or craft.

General Average

2. This insurance covers general average and salvage charges, adjusted or determined according
to the contract of carriage and/or the governing law and practice, incurred to avoid or in connection
with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below.

“Both to Blame Collision Clause”

3. This insurance indemnifies the Assured, in respect of any risk insured herein, against liability
incurred under any Both to Blame Collision Clause in the contract of carriage. In the event of any
claim by carriers under the said Clause, the Assured agree to notify the Insurers who shall have
the right, at their own cost and expense, to defend the Assured against such claim.

EXCLUSIONS

4. In no case shall this insurance cover

4.1 loss damage or expense attributable to wilful misconduct of the Assured

4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the
subject-matter insured

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
 139

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)

4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured

4.5 loss damage or expense caused by delay, even though the delay be caused by a risk
insured against (except expenses payable under Clause 2 above)

4.6 loss damage or expense caused by insolvency or financial default of the owners managers
charterers or operators of the vessel where, at the time of loading of the subject-matter
insured on board the vessel, the Assured are aware, or in the ordinary course of business
should be aware, that such insolvency or financial default could prevent the normal
prosecution of the voyage

This exclusion shall not apply where the contract of insurance has been assigned to the
party claiming hereunder who has bought or agreed to buy the subject-matter insured in
good faith under a binding contract

4.7 deliberate damage to or deliberate destruction of the subject-matter insured or any part
thereof by the wrongful act of any person or persons

4.8 loss damage or expense directly or indirectly caused by or arising from the use of any
weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or
radioactive force or matter.

5.

5.1 In no case shall this insurance cover loss damage or expense arising from

5.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of
the subject-matter insured, where the Assured are privy to such unseaworthiness or
unfitness, at the time the subject-matter insured is loaded therein

5.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter
insured, where loading therein or thereon is carried out prior to attachment of this
insurance or by the Assured or their employees and they are privy to such unfitness at
the time of loading.

5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to
the party claiming hereunder who has bought or agreed to buy the subject-matter insured in
good faith under a binding contract.

5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and
fitness of the ship to carry the subject-matter insured to destination.

6. In no case shall this insurance cover loss damage or expense caused by

6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile
act by or against a belligerent power

6.2 capture seizure arrest restraint or detainment, and the consequences thereof or any
attempt thereat

6.3 derelict mines torpedoes bombs or other derelict weapons of war.

7. In no case shall this insurance cover loss damage or expense

 140

7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots
or civil commotions

7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions

7.3 caused by any act of terrorism being an act of any person acting on behalf of, or in
connection with, any organisation which carries out activities directed towards the
overthrowing or influencing, by force or violence, of any government whether or not legally
constituted

7.4 caused by any person acting from a political, ideological or religious motive.

DURATION

Transit Clause

8.

8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter
insured is first moved in the warehouse or at the place of storage (at the place named in the
contract of insurance) for the purpose of the immediate loading into or onto the carrying
vehicle or other conveyance for the commencement of transit, continues during the ordinary
course of transit and terminates either

8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the
final warehouse or place of storage at the destination named in the contract of
insurance,

8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any
other warehouse or place of storage, whether prior to or at the destination named in
the contract of insurance, which the Assured or their employees elect to use either for
storage other than in the ordinary course of transit or for allocation or distribution, or

8.1.3 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 or

8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter
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 subject-matter insured is to be forwarded to a
destination other than that to which it is insured, this insurance, whilst remaining subject to
termination as provided in Clauses 8.1.1 to 8.1.4, shall not extend beyond the time the
subject-matter insured is first moved for the purpose of the commencement of transit to
such other destination.

8.3 This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1
to 8.1.4 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 carriers under the
contract of carriage.

Termination of Contract of Carriage

9. If owing to circumstances beyond the control of the Assured either the contract of carriage is
terminated at a port or place other than the destination named therein or the transit is otherwise
terminated before unloading of the subject- matter insured as provided for in Clause 8 above, then
 141

this insurance shall also terminate unless prompt notice is given to the Insurers and continuation of
cover is requested when this insurance shall remain in force, subject to an additional premium if
required by the Insurers, either

9.1 until the subject-matter insured is sold and delivered at such port or place, or, unless
otherwise specially agreed, until the expiry of 60 days after arrival of the subject-matter
insured at such port or place, whichever shall first occur,

or

9.2 if the subject-matter insured is forwarded within the said period of 60 days (or any agreed
extension thereof) to the destination named in the contract of insurance or to any other
destination, until terminated in accordance with the provisions of Clause 8 above.

Change of Voyage

10.

10.1 Where, after attachment of this insurance, the destination is changed by the Assured, this
must be notified promptly to Insurers for rates and terms to be agreed. Should a loss occur
prior to such 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.

10.2 Where the subject-matter insured commences the transit contemplated by this insurance
(in accordance with Clause 8.1), but, without the knowledge of the Assured or their
employees the ship sails for another destination, this insurance will nevertheless be
deemed to have attached at commencement of such transit.

CLAIMS

Insurable Interest

11.

11.1 In order to recover under this insurance the Assured must have an insurable interest in
the subject-matter insured at the time of the loss.

11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss
occurring during the period covered by this insurance, notwithstanding that the loss
occurred before the contract of insurance was concluded, unless the Assured were aware
of the loss and the Insurers were not.

Forwarding Charges

12. Where, as a result of the operation of a risk covered by this insurance, the insured transit is
terminated at a port or place other than that to which the subject-matter insured is covered under
this insurance, the Insurers will reimburse the Assured for any extra charges properly and
reasonably incurred in unloading storing and forwarding the subject-matter insured to the
destination to which it is insured.

This Clause 12, which does not apply to general average or salvage charges, shall be subject to
the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from
the fault negligence insolvency or financial default of the Assured or their employees.

Constructive Total Loss

13. No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter
insured is reasonably abandoned either on account of its actual total loss appearing to be
 142

unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter
insured to the destination to which it is insured would exceed its value on arrival.

Increased Value

14.

14.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured
under this insurance the agreed value of the subject-matter insured shall be deemed to be
increased to the total amount insured under this insurance and all Increased Value
insurances covering the loss, and liability under this insurance shall be in such proportion
as the sum insured under this insurance bears to such total amount insured. In the event of
claim the Assured shall provide the Insurers with evidence of the amounts insured under all
other insurances.

14.2 Where this insurance is on Increased Value the following clause shall apply:

The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss
and effected on the subject-matter insured by the Assured, and liability under this insurance
shall be in such proportion as the sum insured under this insurance bears to such total
amount insured.

In the event of claim the Assured shall provide the Insurers with evidence of the amounts
insured under all other insurances.

BENEFIT OF INSURANCE

15. This insurance

15.1 covers the Assured which includes the person claiming indemnity either as the person by
or on whose behalf the contract of insurance was effected or as an assignee,

15.2 shall not extend to or otherwise benefit the carrier or other bailee.

MINIMISING LOSSES

Duty of Assured

16. It is the duty of the Assured and their employees and agents in respect of loss recoverable
hereunder

16.1 to take such measures as may be reasonable for the purpose of averting or minimising
such loss, and

16.2 to ensure that all rights against carriers, bailees or other third parties are properly
preserved and exercised and the Insurers will, in addition to any loss recoverable
hereunder, reimburse the Assured for any charges properly and reasonably incurred in
pursuance of these duties.

Waiver

17. Measures taken by the Assured or the Insurers with the object of saving, protecting or
recovering the subject-matter insured shall not be considered as a waiver or acceptance of
abandonment or otherwise prejudice the rights of either party.

AVOIDANCE OF DELAY
 143

18. It is a condition of this insurance that the Assured shall act with reasonable despatch in all
circumstances within their control.

LAW AND PRACTICE

19. This insurance is subject to English law and practice.

Note

Where a continuation of cover is requested under Clause 9, or a change of destination is notified

under Clause 10, there is an obligation to give prompt notice to the Insurers and the right to such
cover is dependent upon compliance with this obligation.

© Copyright: 11/08 – Lloyd’s Market Association (LMA) and International Underwriting Association
of London (IUA).
CL383
01/01/2009
 144

Institute Cargo Clauses (C) (1/1/09)

RISKS COVERED

Risks

1. This insurance covers, except as excluded by the provisions of Clauses 4, 5, 6 and 7 below,

1.1 loss of or damage to the subject-matter insured reasonably attributable to

1.1.1 fire or explosion

1.1.2 vessel or craft being stranded grounded sunk or capsized

1.1.3 overturning or derailment of land conveyance

1.1.4 collision or contact of vessel craft or conveyance with any external object other than
water

1.1.5 discharge of cargo at a port of distress,

1.2 loss of or damage to the subject-matter insured caused by

1.2.1 general average sacrifice

1.2.2 jettison.

General Average

2. This insurance covers general average and salvage charges, adjusted or determined according
to the contract of carriage and/or the governing law and practice, incurred to avoid or in connection
with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below.

“Both to Blame Collision Clause”

3. This insurance indemnifies the Assured, in respect of any risk insured herein, against liability
incurred under any Both to Blame Collision Clause in the contract of carriage. In the event of any
claim by carriers under the said Clause, the Assured agree to notify the Insurers who shall have
the right, at their own cost and expense, to defend the Assured against such claim.

EXCLUSIONS

4. In no case shall this insurance cover

4.1 loss damage or expense attributable to wilful misconduct of the Assured

4.2 ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the
subject-matter insured

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)

4.4 loss damage or expense caused by inherent vice or nature of the subject-matter insured
 145

4.5 loss damage or expense caused by delay, even though the delay be caused by a risk
insured against (except expenses payable under Clause 2 above)

4.6 loss damage or expense caused by insolvency or financial default of the owners managers
charterers or operators of the vessel where, at the time of loading of the subject-matter
insured on board the vessel, the Assured are aware, or in the ordinary course of business
should be aware, that such insolvency or financial default could prevent the normal
prosecution of the voyage

This exclusion shall not apply where the contract of insurance has been assigned to the
party claiming hereunder who has bought or agreed to buy the subject-matter insured in
good faith under a binding contract

4.7 deliberate damage to or deliberate destruction of the subject-matter insured or any part
thereof by the wrongful act of any person or persons

4.8 loss damage or expense directly or indirectly caused by or arising from the use of any
weapon or device employing atomic or nuclear fission and/or fusion or other like reaction or
radioactive force or matter.

5.

5.1 In no case shall this insurance cover loss damage or expense arising from

5.1.1 unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of
the subject-matter insured, where the Assured are privy to such unseaworthiness or
unfitness, at the time the subject-matter insured is loaded therein

5.1.2 unfitness of container or conveyance for the safe carriage of the subject-matter
insured, where loading therein or thereon is carried out prior to attachment of this
insurance or by the Assured or their employees and they are privy to such unfitness at
the time of loading.

5.2 Exclusion 5.1.1 above shall not apply where the contract of insurance has been assigned to
the party claiming hereunder who has bought or agreed to buy the subject-matter insured in
good faith under a binding contract.

5.3 The Insurers waive any breach of the implied warranties of seaworthiness of the ship and
fitness of the ship to carry the subject-matter insured to destination.

6. In no case shall this insurance cover loss damage or expense caused by

6.1 war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile
act by or against a belligerent power

6.2 capture seizure arrest restraint or detainment, and the consequences thereof or any
attempt thereat

6.3 derelict mines torpedoes bombs or other derelict weapons of war.

7. In no case shall this insurance cover loss damage or expense

7.1 caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots
or civil commotions

7.2 resulting from strikes, lock-outs, labour disturbances, riots or civil commotions

7.3 caused by any act of terrorism being an act of any person acting on behalf of, or in
connection with, any organisation which carries out activities directed towards the
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overthrowing or influencing, by force or violence, of any government whether or not legally

constituted

7.4 caused by any person acting from a political, ideological or religious motive.

DURATION

Transit Clause

8.

8.1 Subject to Clause 11 below, this insurance attaches from the time the subject-matter
insured is first moved in the warehouse or at the place of storage (at the place named in the
contract of insurance) for the purpose of the immediate loading into or onto the carrying
vehicle or other conveyance for the commencement of transit, continues during the ordinary
course of transit and terminates either

8.1.1 on completion of unloading from the carrying vehicle or other conveyance in or at the
final warehouse or place of storage at the destination named in the contract of
insurance,

8.1.2 on completion of unloading from the carrying vehicle or other conveyance in or at any
other warehouse or place of storage, whether prior to or at the destination named in
the contract of insurance, which the Assured or their employees elect to use either for
storage other than in the ordinary course of transit or for allocation or distribution, or

8.1.3 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 or

8.1.4 on the expiry of 60 days after completion of discharge overside of the subject-matter
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 subject-matter insured is to be forwarded to a
destination other than that to which it is insured, this insurance, whilst remaining subject to
termination as provided in Clauses 8.1.1 to 8.1.4, shall not extend beyond the time the
subject- matter insured is first moved for the purpose of the commencement of transit to
such other destination.

8.3 This insurance shall remain in force (subject to termination as provided for in Clauses 8.1.1
to 8.1.4 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 carriers under the
contract of carriage.

Termination of Contract of Carriage

9. If owing to circumstances beyond the control of the Assured either the contract of carriage is
terminated at a port or place other than the destination named therein or the transit is otherwise
terminated before unloading of the subject- matter insured as provided for in Clause 8 above, then
this insurance shall also terminate unless prompt notice is given to the Insurers and continuation of
cover is requested when this insurance shall remain in force, subject to an additional premium if
required by the Insurers, either

9.1 until the subject-matter insured is sold and delivered at such port or place, or, unless
otherwise specially agreed, until the expiry of 60 days after arrival of the subject-matter
insured at such port or place, whichever shall first occur,
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or

9.2 if the subject-matter insured is forwarded within the said period of 60 days (or any agreed
extension thereof) to the destination named in the contract of insurance or to any other
destination, until terminated in accordance with the provisions of Clause 8 above.

Change of Voyage

10.

10.1 Where, after attachment of this insurance, the destination is changed by the Assured, this
must be notified promptly to Insurers for rates and terms to be agreed. Should a loss occur
prior to such 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.

10.2 Where the subject-matter insured commences the transit contemplated by this insurance
(in accordance with Clause 8.1), but, without the knowledge of the Assured or their
employees the ship sails for another destination, this insurance will nevertheless be
deemed to have attached at commencement of such transit.

CLAIMS

Insurable Interest

11.

11.1 In order to recover under this insurance the Assured must have an insurable interest in
the subject-matter insured at the time of the loss.

11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss
occurring during the period covered by this insurance, notwithstanding that the loss
occurred before the contract of insurance was concluded, unless the Assured were aware
of the loss and the Insurers were not.

Forwarding Charges

12. Where, as a result of the operation of a risk covered by this insurance, the insured transit is
terminated at a port or place other than that to which the subject-matter insured is covered under
this insurance, the Insurers will reimburse the Assured for any extra charges properly and
reasonably incurred in unloading storing and forwarding the subject-matter insured to the
destination to which it is insured.

This Clause 12, which does not apply to general average or salvage charges, shall be subject to
the exclusions contained in Clauses 4, 5, 6 and 7 above, and shall not include charges arising from
the fault negligence insolvency or financial default of the Assured or their employees.

Constructive Total Loss

13. No claim for Constructive Total Loss shall be recoverable hereunder unless the subject-matter
insured is reasonably abandoned either on account of its actual total loss appearing to be
unavoidable or because the cost of recovering, reconditioning and forwarding the subject-matter
insured to the destination to which it is insured would exceed its value on arrival.

Increased Value

14.

14.1 If any Increased Value insurance is effected by the Assured on the subject-matter insured
under this insurance the agreed value of the subject-matter insured shall be deemed to be
 148

increased to the total amount insured under this insurance and all Increased Value
insurances covering the loss, and liability under this insurance shall be in such proportion
as the sum insured under this insurance bears to such total amount insured.

In the event of claim the Assured shall provide the Insurers with evidence of the amounts
insured under all other insurances.

14.2 Where this insurance is on Increased Value the following clause shall apply:

The agreed value of the subject-matter insured shall be deemed to be equal to the total amount
insured under the primary insurance and all Increased Value insurances covering the loss
and effected on the subject-matter insured by the Assured, and liability under this insurance
shall be in such proportion as the sum insured under this insurance bears to such total
amount insured.

In the event of claim the Assured shall provide the Insurers with evidence of the amounts
insured under all other insurances.

BENEFIT OF INSURANCE

15. This insurance

15.1 covers the Assured which includes the person claiming indemnity either as the person by
or on whose behalf the contract of insurance was effected or as an assignee,

15.2 shall not extend to or otherwise benefit the carrier or other bailee.

MINIMISING LOSSES

Duty of Assured

16. It is the duty of the Assured and their employees and agents in respect of loss recoverable
hereunder

16.1 to take such measures as may be reasonable for the purpose of averting or minimising
such loss, and

16.2 to ensure that all rights against carriers, bailees or other third parties are properly
preserved and exercised and the Insurers will, in addition to any loss recoverable
hereunder, reimburse the Assured for any charges properly and reasonably incurred in
pursuance of these duties.

Waiver

17. Measures taken by the Assured or the Insurers with the object of saving, protecting or
recovering the subject-matter insured shall not be considered as a waiver or acceptance of
abandonment or otherwise prejudice the rights of either party.

AVOIDANCE OF DELAY

18. It is a condition of this insurance that the Assured shall act with reasonable despatch in all
circumstances within their control.

LAW AND PRACTICE

19. This insurance is subject to English law and practice.

Note
 149

Where a continuation of cover is requested under Clause 9, or a change of destination is notified

under Clause 10, there is an obligation to give prompt notice to the Insurers and the right to such
cover is dependent upon compliance with this obligation.

© Copyright: 11/08 – Lloyd’s Market Association (LMA) and International Underwriting Association
of London (IUA).
CL384
01/01/2009
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York- Antwerp Rules 1994

RULE OF INTERPRETATION

In the adjustment of general average the following Rules shall apply to the exclusion of any Law
and Practice inconsistent therewith.

Except as provided by the Rule Paramount and the numbered Rules, general average shall be
adjusted according to the lettered Rules.

RULE PARAMOUNT

In no case shall there be any allowance for sacrifice or expenditure unless reasonably made or
incurred.

Rule A

There is a general average act when, and only when, any extraordinary sacrifice or expenditure is
intentionally and reasonably made or incurred for the common safety for the purpose of preserving
from peril the property involved in a common maritime adventure.

General average sacrifices and expenditures shall be borne by the different contributing interests
on the basis hereinafter provided.

Rule B

There is a common maritime adventure when one or more vessels are towing or pushing another
vessel or vessels, provided that they are all involved in commercial activities and not in a salvage
operation.

When measures are taken to preserve the vessels and their cargoes, if any, from a common peril,
these Rules shall apply.

A vessel is not in common peril with another vessel or vessels if by simply disconnecting from the
other vessel or vessels she is in safety; but if the disconnection is itself a general average act the
common maritime adventure continues.

Rule C

Only such losses, damages or expenses which are the direct consequence of the general average
act shall be allowed as general average.

In no case shall there be any allowance in general average for losses, damages or expenses
incurred in respect of damage to the environment or in consequence of the escape or release of
pollutant substances from the property involved in the common maritime adventure.

Demurrage, loss of market, and any loss or damage sustained or expense incurred by reason of
delay, whether on the voyage or subsequently, and any indirect loss whatsoever, shall not be
admitted as general average.

Rule D

Rights to contribution in general average shall not be affected, though the event which gave rise to
the sacrifice or expenditure may have been due to the fault of one of the parties to the adventure;
but this shall not prejudice any remedies or defences which may be open against or to that party in
respect of such fault.

Rule E
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The onus of proof is upon the party claiming in general average to show that the loss or expense
claimed is properly allowable as general average.

All parties claiming in general average shall give notice in writing to the average adjuster of the
loss or expense in respect of which they claim contribution within 12 months of the date of the
termination of the common maritime adventure.

Failing such notification, or if within 12 months of a request for the same any of the parties shall fail
to supply evidence in support of a notified claim, or particulars of value in respect of a contributory
interest, the average adjuster shall be at liberty to estimate the extent of the allowance or the
contributory value on the basis of the information available to him, which estimate may be
challenged only on the ground that it is manifestly incorrect.

Rule F

Any additional expense incurred in place of another expense which would have been allowable as
general average shall be deemed to be general average and so allowed without regard to the
saving, if any, to other interests, but only up to the amount of the general average expense
avoided.

Rule G

General average shall be adjusted as regards both loss and contribution upon the basis of values
at the time and place when and where the adventure ends.

This rule shall not affect the determination of the place at which the average statement is to be
made up.

When a ship is at any port or place in circumstances which would give rise to an allowance in
general average under the provisions of Rules X and XI, and the cargo or part thereof is forwarded
to destination by other means, rights and liabilities in general average shall, subject to cargo
interests being notified if practicable, remain as nearly as possible the same as they would have
been in the absence of such forwarding, as if the adventure had continued in the original ship for
so long as justifiable under the contract of affreightment and the applicable law.

The proportion attaching to cargo of the allowances made in general average by reason of
applying the third paragraph of this Rule shall not exceed the cost which would have been borne
by the owners of cargo if the cargo had been forwarded at their expense.

Rule I. Jettison of Cargo

No jettison of cargo shall be made good as general average, unless such cargo is carried in
accordance with the recognised custom of the trade.

Rule II. Loss or damage by Sacrifices for the Common Safety

Loss of or damage to the property involved in the common maritime adventure by or in

consequence of a sacrifice made for the common safety, and by water which goes down a ship’s
hatches opened or other opening made for the purpose of making a jettison for the common
safety, shall be made good as general average.

Rule III. Extinguishing Fire on Shipboard

Damage done to a ship and cargo, or either of them, by water or otherwise, including damage by
beaching or scuttling a burning ship, in extinguishing a fire on board the ship, shall be made good
as general average; except that no compensation shall be made for damage by smoke however
caused or by heat of the fire.
 152

Rule IV. Cutting Away Wreck

Loss or damage sustained by cutting away wreck or parts of the ship which have been previously
carried away or are effectively lost by accident shall not be made good as general average.

Rule V. Voluntary Stranding

When a ship is intentionally run on shore for the common safety, whether or not she might have
been driven on shore, the consequent loss or damage to the property involved in the common
maritime adventure shall be allowed in general average.

Rule VI. Salvage Remuneration

(a) Expenditure incurred by the parties to the adventure in the nature of salvage, whether under
contract or otherwise, shall be allowed in general average provided that the salvage operations
were carried out for the purpose of preserving from peril the property involved in the common
maritime adventure.

Expenditure allowed in general average shall include any salvage remuneration in which the skill
and efforts of the salvors in preventing or minimising damage to the environment such as is
referred to in Article 13 paragraph 1(b) of the International Convention on Salvage, 1989 have
been taken into account.

(b) Special compensation payable to a salvor by the shipowner under Article 14 of the said
Convention to the extent specified in paragraph 4 of that Article or under any other provision
similar in substance shall not be allowed in general average.

Rule VII. Damage to Machinery and Boilers

Damage caused to any machinery and boilers of a ship which is ashore and in a position of peril, in
endeavouring to refloat, shall be allowed in general average when shown to have arisen from an
actual intention to float the ship for the common safety at the risk of such damage; but where a
ship is afloat no loss or damage caused by working the propelling machinery and boilers shall in
any circumstances be made good as general average.

Rule VIII. Expenses Lightening a Ship when Ashore, and Consequent Damage

When a ship is ashore and cargo and ship’s fuel and stores or any of them are discharged as a
general average act, the extra cost of lightening, lighter hire and reshipping (if incurred), and any
loss or damage to the property involved in the common maritime adventure in consequence
thereof, shall be admitted as general average.

Rule IX. Cargo, Ship’s Materials and Stores Used for Fuel

Cargo, ship’s materials and stores, or any of them, necessarily used for fuel for the common safety
at a time of peril shall be admitted as general average, but when such an allowance is made for
the cost of ship’s materials and stores the general average shall be credited with the estimated
cost of the fuel which would otherwise have been consumed in prosecuting the intended voyage.

Rule X. Expenses at Port of Refuge, etc.

(a) When a ship shall have entered a port or place of refuge or shall have returned to her port or
place of loading in consequence of accident, sacrifice or other extraordinary circumstances which
render that necessary for the common safety, the expenses of entering such port or place shall be
admitted as general average; and when she shall have sailed thence with her original cargo, or a
part of it, the corresponding expenses of leaving such port or place consequent upon such entry or
return shall likewise be admitted as general average.
 153

When a ship is at any port or place of refuge and is necessarily removed to another port or place
because repairs cannot be carried out in the first port or place, the provisions of this Rule shall be
applied to the second port or place as if it were a port or place of refuge and the cost of such
removal including temporary repairs and towage shall be admitted as general average. The
provisions of Rule XI shall be applied to the prolongation of the voyage occasioned by such
removal.

(b) The cost of handling on board or discharging cargo, fuel or stores whether at a port or place of
loading, call or refuge, shall be admitted as general average, when the handling or discharge was
necessary for the common safety or to enable damage to the ship caused by sacrifice or accident
to be repaired, if the repairs were necessary for the safe prosecution of the voyage, except in
cases where the damage to the ship is discovered at a port or place of loading or call without any
accident or other extraordinary circumstances connected with such damage having taken place
during the voyage.

The cost of handling on board or discharging cargo, fuel or stores shall not be admissible as
general average when incurred solely for the purpose of restowage due to shifting during the
voyage, unless such restowage is necessary for the common safety.

(c) Whenever the cost of handling or discharging cargo, fuel or stores is admissible as general
average, the costs of storage, including insurance if reasonably incurred, reloading and stowing of
such cargo, fuel or stores shall likewise be admitted as general average. The provisions of Rule XI
shall be applied to the extra period of detention occasioned by such reloading or restowing.

But when the ship is condemned or does not proceed on her original voyage, storage expenses
shall be admitted as general average only up to the date of the ship’s condemnation or of the
abandonment of the voyage or up to the date of completion of discharge of cargo if the
condemnation or abandonment takes place before that date.

Rule XI. Wages and Maintenance of Crew and Other Expenses Bearing up for and in a Port of
Refuge, etc.

(a) Wages and maintenance of master, officers and crew reasonably incurred and fuel and stores
consumed during the prolongation of the voyage occasioned by a ship entering a port or place of
refuge or returning to her port or place of loading shall be admitted as general average when the
expenses of entering such port or place are allowable in general average in accordance with Rule
X(a).

(b) When a ship shall have entered or been detained in any port or place in consequence of
accident, sacrifice or other extraordinary circumstances which render that necessary for the
common safety, or to enable damage to the ship caused by sacrifice or accident to be repaired, if
the repairs were necessary for the safe prosecution of the voyage, the wages and maintenance of
the master, officers and crew reasonably incurred during the extra period of detention in such port
or place until the ship shall or should have been made ready to proceed upon her voyage, shall be
admitted in general average.

Fuel and stores consumed during the extra period of detention shall be admitted as general
average, except such fuel and stores as are consumed in effecting repairs not allowable in general
average.

Port charges incurred during the extra period of detention shall likewise be admitted as general
average except such charges as are incurred solely by reason of repairs not allowable in general
average.

Provided that when damage to the ship is discovered at a port or place of loading or call without
any accident or other extraordinary circumstance connected with such damage having taken place
during the voyage, then the wages and maintenance of master, officers and crew and fuel and
 154

stores consumed and port charges incurred during the extra detention for repairs to damages so
discovered shall not be admissible as general average, even if the repairs are necessary for the
safe prosecution of the voyage.

When the ship is condemned or does not proceed on her original voyage, the wages and
maintenance of the master, officers and crew and fuel and stores consumed and port charges shall
be admitted as general average only up to the date of the ship’s condemnation or of the
abandonment of the voyage or up to the date of completion of discharge of cargo if the
condemnation or abandonment takes place before that date.

(c) For the purpose of this and the other Rules wages shall include all payments made to or for
the benefit of the master, officers and crew, whether such payments be imposed by law upon the
shipowners or be made under the terms of articles of employment.

(d) The cost of measures undertaken to prevent or minimise damage to the environment shall be
allowed in general average when incurred in any or all of the following circumstances:

(i) as part of an operation performed for the common safety which, had it been undertaken by
a party outside the common maritime adventure, would have entitled such party to a salvage
reward;

(ii) as a condition of entry into or departure from any port or place in the circumstances
prescribed in Rule X(a);

(iii) as a condition of remaining at any port or place in the circumstances prescribed in Rule XI(b),
provided that when there is an actual escape or release of pollutant substances the cost of any
additional measures required on that account to prevent or minimise pollution or environmental
damage shall not be allowed as general average;

(iv) necessarily in connection with the discharging, storing or reloading of cargo whenever the
cost of those operations is admissible as general average.

Rule XII. Damage to Cargo in Discharging, etc.

Damage to or loss of cargo, fuel or stores sustained in consequence of their handling, discharging,
storing, reloading and stowing shall be made good as general average, when and only when the
cost of those measures respectively is admitted as general average.

Rule XIII. Deduction from Cost of Repairs

Repairs to be allowed in general average shall not be subject to deductions in respect of “new or
old” where old material or parts are replaced by new unless the ship is over fifteen years old in
which case there shall be a deduction of one third. The deductions shall be regulated by the age of
the ship from the 31st December of the year of completion of construction to the date of the
general average act, except for insulation, life and similar boats, communications and navigational
apparatus and equipment, machinery and boilers for which the deductions shall be regulated by
the age of the particular parts to which they apply.

The deductions shall be made only from the cost of the new material or parts when finished and
ready to be installed in the ship. No deductions shall be made in respect of provisions, stores,
anchors and chain cables.

Drydock and slipway dues and costs of shifting the ship shall be allowed in full.

The costs of cleaning, painting or coating of bottom shall not be allowed in general average unless
the bottom has been painted or coated within the twelve months preceding the date of the general
average act in which case one half of such costs shall be allowed.
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Rule XIV. Temporary Repairs

Where temporary repairs are effected to a ship at a port of loading, call or refuge, for the common
safety, or of damage caused by general average sacrifice, the cost of such repairs shall be
admitted as general average.

Where temporary repairs of accidental damage are effected in order to enable the adventure to be
completed, the cost of such repairs shall be admitted as general average without regard to the
saving, if any, to other interests, but only up to the saving in expense which would have been
incurred and allowed in general average if such repairs had not been effected there.

No deductions “new for old” shall be made from the cost of temporary repairs allowable as general
average.

Rule XV. Loss of Freight

Loss of freight arising from damage to or loss of cargo shall be made good as general average,
either when caused by a general average act, or when the damage to or loss of cargo is so made
good.

Deduction shall be made from the amount of gross freight lost, of the charges which the owner
thereof would have incurred to earn such freight, but has, in consequence of the sacrifice, not
incurred.

Rule XVI. Amount to be made Good for Cargo Lost or Damaged by Sacrifice

The amount to be made good as general average for damage to or loss of cargo sacrificed shall be
the loss which has been sustained thereby based on the value at the time of discharge,
ascertained from the commercial invoice rendered to the receiver or if there is no such invoice from
the shipped value. The value at the time of discharge shall include the cost of insurance and freight
except insofar as such fright is at the risk of interests other than the cargo.

When cargo so damaged is sold and the amount of the damage has not been otherwise agreed,
the loss to be made good in general average shall be the difference between the net proceeds of
sale and the net sound value as computed in the first paragraph of this Rule.

Rule XVII. Contributory Values

The contribution to a general average shall be made upon the actual net values of the property at
the termination of the adventure except that the value of cargo shall be the value at the time of
discharge, ascertained from the commercial invoice rendered to the receiver or if there is no such
invoice from the shipped value. The value of the cargo shall include the cost of insurance and
freight unless and insofar as such freight is at the risk of interests other than the cargo, deducting
therefrom any loss or damage suffered by the cargo prior to or at the time of discharge. The value
of the ship shall be assessed without taking into account the beneficial or detrimental effect of any
demise or time charterparty to which the ship may be committed.

To these values shall be added the amount made good as general average for property sacrificed,
if not already included, deduction being made from the freight and passage money at risk of such
charges and crew’s wages as would not have been incurred in earning the freight had the ship and
cargo been totally lost at the date of the general average act and have not been allowed as
general average; deduction being also made from the value of the property of all extra charges
incurred in respect thereof subsequently to the general average act, except such charges as are
allowed in general average or fall upon the ship

by virtue of an award for special compensation under Article 14 of the International Convention on
Salvage, 1989 or under any other provision similar in substance.
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In the circumstances envisaged in the third paragraph of Rule G, the cargo and other property
shall contribute on the basis of its value upon delivery at original destination unless sold or
otherwise disposed of short of that destination, and the ship shall contribute upon its actual net
value at the time of completion of discharge of cargo.

Where cargo is sold short of destination, however, it shall contribute upon the actual net proceeds
of sale, with the addition of any amount made good as general average.

Mails, passenger’s luggage, personal effects and accompanied private motor vehicles shall not
contribute in general average.

Rule XVIII. Damage to Ship

The amount to be allowed as general average for damage or loss to the ship, her machinery
and/or gear caused by a general average act shall be as follows:

(a) When repaired or replaced,

The actual reasonable cost of repairing or replacing such damage or loss, subject to deductions in
accordance with Rule XIII;

(b) When not repaired or replaced,

The reasonable depreciation arising from such damage or loss, but not exceeding the estimated
cost of repairs. But where the ship is an actual total loss or when the cost of repairs of the damage
would exceed the value of the ship when repaired, the amount to be allowed as general average
shall be the difference between the estimated sound value of the ship after deducting therefrom
the estimated cost of repairing damage which is not general average and the value of the ship in
her damaged state which may be measured by the net proceeds of sale, if any.

Rule XIX. Undeclared or Wrongfully Declared Cargo

Damage or loss caused to goods loaded without the knowledge of the shipowner or his agent or to
goods wilfully misdescribed at time of shipment shall not be allowed as general average, but such
goods shall remain liable to contribute, if saved.

Damage or loss caused to goods which have been wrongfully declared on shipment at a value
which is lower than their real value shall be contributed for at the declared value, but such goods
shall contribute upon their actual value.

Rule XX. Provision of Funds

A commission of 2 per cent. on general average disbursements, other than the wages and
maintenance of master, officers and crew and fuel and stores not replaced during the voyage, shall
be allowed in general average.

The capital loss sustained by the owners of goods sold for the purpose of raising funds to defray
general average disbursements shall be allowed in general average.

The cost of insuring general average disbursements shall also be admitted in general average.

Rule XXI. Interest on Losses made Good in General Average

Interest shall be allowed on expenditure, sacrifices and allowances in general average at the rate
of 7 per cent. per annum, until three months after the date of issue of the general average
adjustment, due allowance being made for any payment on account by the contributory interests or
from the general average deposit fund.

Rule XXII. Treatment of Cash Deposits

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Where cash deposits have been collected in respect of cargo’s liability for general average,
salvage or special charges, such deposits shall be paid without any delay into a special account in
the joint names of a representative nominated on behalf of the shipowner and a representative
nominated on behalf of the depositors in a bank to be approved by both. The sum so deposited,
together with accrued interest, if any, shall be held as security for payment to the parties entitled
thereto of the general average, salvage or special charges payable by cargo in respect to which
the deposits have been collected. Payments on account or refunds of deposits may be made if
certified to in writing by the average adjuster. Such deposits and payments or refunds shall be
without prejudice to the ultimate liability of the parties.
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