Marine Open Cover: Late Declaration and the Delay Exclusion
Coastal Autoparts of Chennai ships 400 cartons of machined components to Hamburg on CIF terms, insured under a monthly-declaration marine open cargo policy on Institute Cargo Clauses (A), on 110% of CIF value, warehouse to warehouse. The policy requires every shipment to be declared within seven days of the bill of lading date and provides that shipments not so declared are held covered at a premium to be arranged. The vessel sailed on 3 August. On 9 August it met heavy weather in the Bay of Bengal; a container stack shifted, a hatch cover was damaged and seawater entered hold No. 2, where all 400 cartons were stowed. To right the ship the master jettisoned two containers belonging to other shippers, and the shipowner declared general average at Colombo, where repairs were carried out. Of Coastal's cartons, 90 were wetted; 60 of those were later found on survey to be sound but depreciated by 40%, and 30 had rusted through and were a total loss. The CIF value of the whole consignment is Rs 2 crore. The balance of the cargo was discharged at Hamburg 60 days late, the buyer refused to accept because the market had fallen, and the goods were sold at 30% below contract price. Coastal declared the shipment on 24 August, after its agent had reported the casualty.
1. Identify which heads of loss are recoverable under the policy and quantify the cargo damage claim. Show your basis of valuation.
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Separate the physical loss from the commercial loss before applying any figures.
Recoverable. (i) Seawater damage: under Clause (A) all risks are covered except those excluded, so ingress of seawater through a damaged hatch is a recoverable fortuitous accident. (ii) General average contribution: where the shipowner has properly declared general average after a sacrifice such as jettison, the cargo owner's contribution is a recoverable loss under the sue-and-labour and general average provisions of the clauses. (iii) Sue-and-labour and forwarding charges reasonably incurred to preserve the cargo.
Not recoverable. (i) Delay: loss caused by delay is expressly excluded, even under Clause (A). (ii) Loss of market: the fall in price and the buyer's refusal are commercial losses, not physical loss of or damage to the goods, and are excluded along with the consequential loss. (iii) The 30% price shortfall is therefore irrecoverable however painful.
Quantification. The insured value is 110% of Rs 2 crore = Rs 2.2 crore for 400 cartons, i.e. Rs 5.5 lakh per carton.
- 30 cartons totally lost: 30 x Rs 5.5 lakh = Rs 16.5 lakh.
- 60 cartons depreciated 40%: 60 x Rs 5.5 lakh = Rs 33 lakh, x 40% = Rs 13.2 lakh.
- Cargo damage subtotal: Rs 29.7 lakh. General average contribution is payable in addition, at the adjustment rate, within the insured value. Note the 110% basis is a ceiling: if the arrived sound value had exceeded the insured value, the excess would be uninsured, and if it was lower, the measure of indemnity is applied to the insured value, not the arrived value, so the insured does not profit.
2. The shipment was declared on 24 August, after Coastal knew of the casualty. What is the effect of the late declaration, and how should the insurer respond?
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An open cover is a standing agreement to insure all shipments falling within its scope; the declaration is the mechanism by which individual shipments are brought into it and rated. Two rules pull in opposite directions here.
The strict rule. A declaration made after the assured has learned of a loss is not a bona fide declaration. The assured cannot sit on a shipment it expects to be sound and declare only the ones that meet with misfortune; that is selection against the insurer and offends good faith. On the strict view the insurer may decline the shipment altogether, because the condition requiring declaration within seven days has not been met.
The mitigating rule. The policy itself says undescribed shipments are 'held covered at a premium to be arranged'. That clause exists precisely to prevent a technical breach from destroying the cover; its effect is that the shipment remains insured, subject to an additional premium and any terms the insurer may impose. A court or the ombudsman is likely to ask whether the insurer suffered any prejudice: here the delay of about two weeks did not prevent survey, because the survey took place at Hamburg.
Recommended response. Do not repudiate outright. Pay the recoverable heads, but (i) charge an additional premium under the held-covered clause for the late declaration, (ii) put the insured on written notice that future late declarations may lead to cancellation of the open cover, and (iii) review the declaration procedure with the broker. The wider lesson is that the insurer's real protection is the premium adjustment and the contractual warning, not a denial that would probably fail on prejudice grounds. Note also that the assured's duty to declare extends to all shipments, including the ones that arrive safely; a pattern of declaring only casualties would be evidence of bad faith.
3. The buyer refused delivery on the ground of the 60-day delay. Explain how the insurer should treat the storage, sale and re-forwarding costs that followed.
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The refusal triggers costs that sit on the boundary between recoverable mitigation and excluded commercial loss, so each item must be classified separately.
Re-forwarding and landing charges. If the assured incurred costs to land, store or forward the goods to the destination named in the policy in order to avoid or diminish a loss insured by the policy, those are sue-and-labour charges and are recoverable, even if the effort ultimately failed, provided they were reasonably incurred. They are additional to the loss, subject to the insured value being the overall ceiling.
Storage at Hamburg. Storage pending sale is recoverable only to the extent it was incurred to preserve the goods from physical deterioration that would otherwise be an insured loss. Storage incurred simply because the buyer would not take delivery is a consequence of the delay and the market, and is excluded. The surveyor's report should distinguish the two.
Sale at a 30% reduction. The difference between the contract price and the realised price is loss of market. Clause (A) excludes loss caused by delay and excludes consequential loss, so this item is not payable. If, however, part of the shortfall reflects physical depreciation of the wetted cartons, that element is already captured in the damage claim and must not be counted twice.
Warehouse-to-warehouse termination. Cover ends 60 days after discharge from the oversea vessel if delivery to the consignee's warehouse has not occurred, so any loss after that date falls outside the policy and must be excluded from the calculation.
The disciplined answer is to pay the physical damage, the general average contribution and the genuine mitigation charges, and to refuse the market loss with a clear written explanation of the delay and consequential loss exclusions.