Milk Powder Under ICC(A) - Packing, Inherent Vice, Pilferage and Recourse Against the Carrier
An Indian importer buys 4,000 sacks of skimmed milk powder, 25 kg each, FOB Hamburg, and insures the cargo under ICC(A) for USD 480,000, being 110% of the CIF value. The seller stuffs the cargo into four 40-ft containers in a shed where humidity was high, without desiccant. The containers are transhipped at Colombo and held there for 11 days. At the Chennai CFS, 300 sacks are found caked and mouldy; the surveyor attributes the damage to condensation, records that the powder's moisture content was above the contractual maximum, and notes that the sacks had been loaded warm. A further 120 sacks are missing at devanning, although the Colombo tally had recorded all 4,000 sacks, and the evidence shows one container seal was cut and re-sealed at Colombo. A forklift tears 40 sacks during devanning at the CFS. The importer claims for all three heads and asks the underwriter to pay within 15 days.
1. Advise which heads of loss are recoverable under ICC(A), with reasons.
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300 caked sacks - not recoverable. ICC(A) covers all risks, but the burden of proving that a loss falls within an exclusion rests on the insurer. Two exclusions fit. Clause 4.3 excludes loss caused by insufficiency or unsuitability of packing or preparation, and the seller's own stuffing in a humid shed without desiccant, coupled with an out-of-specification moisture content, is exactly that. Clause 4.4 excludes loss caused by inherent vice or the nature of the subject-matter, and milk powder loaded warm with excess moisture will cake without any external accident. If the assured instead argues that the proximate cause was the 11-day delay at Colombo, clause 4.5 excludes loss caused by delay, even where the delay itself results from a covered peril. The claim fails on either route; the insurer should obtain a full moisture and temperature analysis to make the exclusion stand up.
120 missing sacks - recoverable, USD 14,400. Theft and pilferage are covered risks under clause 1.1 of ICC(A); there is no theft exclusion. The cut and re-sealed seal, taken with the Colombo tally of 4,000 sacks, establishes a loss during the period of cover. Value: 480,000 ÷ 4,000 = USD 120 per sack, so 120 × 120 = USD 14,400.
40 sacks torn by forklift - recoverable, USD 4,800. This is accidental handling damage during the ordinary course of transit. Delivery to a CFS used in the ordinary course of transit does not terminate cover under clause 8.1, and an all-risks policy responds to accidental external damage of this kind. Total payable: USD 19,200, plus survey fees where separately insured.
2. What recourse does the insurer have against the carrier for the stolen sacks, and what are the obstacles?
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The right. Subrogation arises on payment under section 79 of the Marine Insurance Act 1963. The insurer steps into the assured's shoes and sues the carrier in the assured's name for the USD 14,400, subject to the assured's duty to give all necessary assistance.
Limitation of liability. Under the Hague-Visby Rules as enacted in India by the Carriage of Goods by Sea Act 1992, the carrier's limit is 666.67 SDR per package or 2 SDR per kilogram, whichever is higher. The 120 sacks are 120 packages: 120 × 666.67 = 80,000 SDR, against 3,000 kg × 2 SDR = 6,000 SDR. The higher figure of 80,000 SDR comfortably exceeds the claim, so limitation is no answer here.
Time bar. Article III rule 6 extinguishes the claim unless suit is brought within one year of delivery. The insurer must diarise this immediately on payment; subrogation does not extend the period.
Defences and pitfalls. The carrier will argue that it exercised due care and that the theft was the act of a third party, but it must prove that defence, and loss during custody at transhipment is hard to explain away. The real risk is procedural: a clean receipt or a full discharge given by the assured before subrogation, or the assured's failure to notify the carrier, can destroy the recourse. Clause 16 of the Institute Cargo Clauses obliges the assured to preserve rights, but breach of it does not prejudice the assured's own claim - it only deprives the insurer of recovery. A separate claim in negligence against the Colombo terminal operator should also be considered, on the Indian three-year limitation.
3. Set out the practical steps and reservations the cargo insurer should build into its handling of the file.
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Immediate steps. Appoint an independent surveyor to attend the devanning and record the seal numbers, container condition and tally before any cargo is moved. Photograph the cut seal and obtain the Colombo terminal's seal and tally records, gate-in and gate-out times, and any CCTV. Issue written notice of claim to the carrier, the transhipment agent and the CFS operator, expressly reserving rights and putting them on notice of subrogation.
Coverage reservations. Issue a reservation of rights letter distinguishing the three heads: admit the pilferage and forklift heads, and reserve on the caking head pending the moisture analysis. Confirm that the CFS is a facility used in the ordinary course of transit and not the assured's own storage, since that would end the transit under clause 8.1.
Documentation and duty of the assured. Obtain the invoice, packing list, bill of lading, survey report, landing account and the assured's letter of subrogation. Remind the assured, in writing, of its duty under clause 16 to take reasonable measures to avert or minimise loss and to preserve rights against carriers and bailees, and note that underwriters' own waiver clause preserves the claim if the assured acts prudently.
Diary and recovery. Enter the Article III rule 6 one-year time bar against the carrier, and separately note the position against the terminal operator. Check whether the assured has signed any clean receipt or given any release; if it has, take a statement immediately, because the recourse may already have been lost. Finally, ensure the 15-day payment request is answered with a payment on the admitted heads and a written reservation on the disputed one.