Cashew Kernels on CIF Terms - Seawater Wetting, Short Landing and Late Fire Under ICC(B)
An importer in Chennai buys 600 bags of raw cashew kernels from Douala on CIF Nhava Sheva terms for USD 300,000 and insures the shipment for USD 330,000 under an ICC(B) cargo policy with no franchise. The carrying vessel calls at Tema for nine days to load extra cocoa, then resumes the voyage; no additional premium is agreed and the underwriter is not told until the claim. A week after Tema, hatch-cover packing on No. 2 hold fails in heavy weather and 90 bags are wetted by sea water. On outturn the surveyor records a sound landed market value of USD 500 per bag and a damaged value of USD 180 per bag for the wetted bags; the balance of the consignment is sold sound. Separately, 24 bags cannot be traced after discharge, and 150 bags are railed to an inland depot 40 days after discharge and destroyed there by fire 85 days after discharge. The importer claims for all three heads and the underwriter has not yet taken a position.
1. Advise which of the three heads of loss are recoverable under the ICC(B) policy, and why.
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1. The 90 wetted bags - covered. ICC(B) is a named-perils cover. Clause 1.1.3 indemnifies loss or damage reasonably attributable to entry of sea, lake or river water into the vessel, craft, hold, container or place of storage. The survey links the damage to the failure of the hatch-cover packing in heavy weather, so seawater entry into No. 2 hold is the proximate cause. The loss is payable in full (no franchise under the Institute Cargo Clauses).
2. The 24 untraced bags - not covered. Non-delivery, theft and pilferage are not named perils in ICC(B). The only package-related cover is clause 1.1.4, which is confined to the total loss of an entire package lost overboard or dropped during loading or unloading. A short landing at destination does not satisfy that wording. The claim should be rejected unless the assured produces evidence that the bags went overboard or were dropped in the course of loading or unloading.
3. The 150 bags burnt at the inland depot - not covered. Fire is a named peril, but the question is one of duration. Clause 8.1 terminates cover on delivery to the consignee's final warehouse, on delivery to any other warehouse the assured elects to use for storage or distribution, or in any event 60 days after discharge from the overseas vessel. Railing the goods to an inland depot ended the ordinary course of transit, and the fire on day 85 is far outside the 60-day limit. Cover had already expired, so a covered peril occurring late is irrelevant.
2. Quantify the indemnity payable for the 90 wetted bags, showing your computation and the rule applied.
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Rule. The policy is a valued policy, so the measure of indemnity for a partial loss of cargo is the proportion of the insured value that the depreciation bears to the sound value at destination - not the market value multiplied by the quantity lost. The arrived sound value is used only to derive the percentage.
Computation.
- Insured value per bag: USD 330,000 ÷ 600 = USD 550.
- Insured value of the 90 affected bags: 90 × 550 = USD 49,500.
- Depreciation: (500 − 180) ÷ 500 = 320 ÷ 500 = 64%.
- Indemnity: 49,500 × 64% = USD 31,680.
Points to note in the file. The insured value (USD 330,000) exceeds the CIF value (USD 300,000), so there is no question of a rateable reduction for under-insurance. There is no deductible or franchise under ICC(B). The damaged value of USD 180 is stated to be the realisation on sale, so the salvage proceeds are already reflected and must not be deducted a second time. If the arrived sound value had been above the insured value, the same depreciation formula would still apply - the insured value, not the market value, caps the recovery.
3. What is the effect of the call at Tema on the insurer's liability, and what should the underwriter do about it?
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The general rule. Section 46 of the Marine Insurance Act 1963 provides that if the ship deviates, the insurer is discharged from liability as from the time of deviation, and it is immaterial that the ship regains her route before the loss occurs. Section 48 lists the excused deviations - saving life, assisting a vessel in distress, obtaining necessary repairs - and a nine-day call purely to load additional commercial cargo is not among them.
The contractual answer. The policy, however, is written on the Institute Cargo Clauses, and clause 8.3 provides that the insurance remains in force (held covered at a premium to be arranged) in the event of deviation, delay beyond the control of the assured, forced discharge, reshipment or transhipment. The wetting occurred after the deviation but within the held-covered protection, so the loss remains recoverable and the underwriter cannot rely on section 46 to escape it.
Action for the underwriter. Charge an additional premium for the deviation from the date it began, record it as a held-covered endorsement, and check the placing file. If the assured knew when the risk attached that the vessel would call at Tema and did not disclose it, section 20 (non-disclosure of a material circumstance) gives a separate and stronger ground than deviation. Absent that, the correct outcome is to pay the wetted-bags claim subject to the additional premium, and reject the other two heads.