Cargo: CIF sale, deck stowage and the scope of transit cover
A shipper sells 500 cartons of specialised machine parts on CIF terms to a buyer in Lagos. The bill of lading shows the goods stowed on deck on a feeder vessel for the first leg (Singapore to Port Klang), then under deck on the ocean vessel to Lagos. The cargo policy is an open cover on Institute Cargo Clauses (A) with a 'held covered' clause for deviation. During the feeder leg the deck cargo is washed overboard in heavy weather; 120 cartons are lost. The shipper had not declared the deck stowage to the insurer, and the bill of lading contains a liberty to stow on deck. The buyer rejects the documents because of the deck stowage notation and refuses to pay. The shipper claims USD 480,000 for the lost cartons under the open cover.
1. Advise whether the loss is recoverable under ICC(A) given the deck stowage and the non-declaration.
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Under ICC(A) all risks are covered unless excluded, but deck stowage raises two issues. First, the 'held covered' deviation clause does not cure a fundamental change in the risk; unauthorised deck stowage may be a breach of the implied warranty/condition of seaworthiness or a material non-disclosure. Second, the insurer must ask whether the goods were 'packed and prepared' and whether the stowage was customary. Where the bill of lading expressly permits deck stowage and the trade customarily carries such goods on deck, the risk is within the cover. But the shipper failed to declare the deck stowage; if the open cover required declaration of deck cargo, non-declaration may entitle the insurer to avoid or reduce the claim. The loss by washing overboard is a physical loss caused by a fortuity, not an excluded peril. Conclusion: recoverable only if deck stowage was within the declared/covered scope; otherwise the insurer may decline or pay on a without-prejudice basis pending investigation.
2. Explain the effect of the buyer's rejection on the shipper's insurable interest and on the claim.
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Under CIF the risk passes to the buyer on shipment, and the shipper's insurable interest ends at that point unless the shipper retains risk. If the buyer validly rejects the documents, the property and risk may revert to the shipper, reviving an insurable interest for the lost cargo. However, rejection for the deck stowage notation is a documentary/contractual dispute, not a physical loss. The insurer's liability turns on whether the shipper had an insurable interest at the time of loss and whether the loss was caused by an insured peril. The shipper cannot recover twice (from buyer and insurer). The insurer should confirm the transfer of risk and the shipper's interest, and consider subrogation rights against the carrier for the deck stowage breach.