CIF Machinery into Karachi: Seawater, Inadequate Packing and a General Average
Indus Machinery (Pvt) Ltd, Karachi, buys a used CNC machining line from a Shanghai supplier on CIF Karachi terms, invoice value USD 400,000. Under the CIF contract the seller arranges marine cargo cover with a Pakistani insurer for 110% of CIF value (USD 440,000) on Institute Cargo Clauses (A). The vessel grounds entering Karachi and the master jettisons part of the deck cargo to refloat; a general average is declared. On discharge, 30% of Indus's machinery shows salt-water damage. The surveyor finds the hatch cover was leaking and that the crates were 'inadequate for a sea voyage'. The cargo also sat 20 days in the port during a customs strike; during that time the local market price of the machines fell by USD 50,000. The insured had inspected the vessel's holds before shipment and raised no objection.
1. Assess recoverability under Institute Cargo Clauses (A) of: the salt-water damage, the general average, and the fall in market price.
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Salt-water damage. ICC(A) is all-risks cover subject to the stated exclusions, so water damage from a leaking hatch is covered in principle. The difficulty is causation. Clause 4.3 excludes loss caused by insufficiency or unsuitability of packing, and the surveyor has called the crates inadequate. If the packing failure was the effective cause, the claim fails; if both the leak and the packing contributed, the insurer should apportion rather than reject outright. The insured's inspection of the holds is relevant to the unseaworthiness exclusion (clause 4.1), which applies where the insured knew of the unfitness.
General average. A jettison to refloat a grounded vessel is a classic general average sacrifice. Both the insured's sacrifice (if his cargo was jettisoned) and his contribution to the general average are recoverable under ICC(A). The insurer pays, takes subrogation, and the adjuster's general average statement governs the split.
Market fall. Clause 4.5 excludes loss, damage or expense caused by delay, and market depreciation is a consequential loss rather than physical damage to the goods. The USD 50,000 is therefore not recoverable, even though the delay was outside the insured's control.
2. Who is entitled to claim under the policy, and how should the indemnity for the partial damage be measured?
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Who claims. Under CIF the seller arranges insurance but risk passes to the buyer at shipment. Indus therefore bears the risk and holds the insurable interest at the time of loss, even though the seller bought the policy. The policy is typically assigned or endorsed to the buyer; the claim is presented in Indus's name with the assignment, the bill of lading, invoice, packing list, survey report and notice of claim. If the policy has not been properly transferred, the insurer may still pay the party with the insurable interest, but the documentation must show the chain.
Measurement. For partial damage, the usual measure is: insured value × (sound value – damaged value) ÷ sound value. If 30% of the consignment is damaged and the machinery is homogeneous, that approximates to 30% of USD 440,000 = USD 132,000, but the surveyor's sound and damaged valuations must be applied rather than a flat percentage.
Points to watch. (i) The sum insured is 110% of CIF, so the insured value includes the buyer's expected profit; that is the correct ceiling. (ii) Salvage value of the damaged machines must be credited. (iii) Any amount attributable to inadequate packing is deducted. (iv) The policy's deductible and any 'first loss' term apply after the measure is calculated.
3. The insurer's adjuster asks whether the claim can be resisted on the ground that the goods were carried on deck. How should the agent respond, and what evidence is needed?
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The agent should not concede the point without reading the actual clause attached to the policy. The Institute Cargo Clauses are a set of exclusions plus a scope clause, and the treatment of deck carriage depends on which clause set was incorporated and on any endorsement. The safe position is:
- Identify the clause set and endorsement text. The schedule and the certificate of insurance should show whether ICC(A) was used unamended or with a deck-cargo endorsement.
- Establish where the loss occurred. Only part of the cargo was jettisoned in the general average; the salt-water damage was to machinery in the hold or in a container. Evidence from the stowage plan, deck log, mate's receipts and the vessel's cargo plan will show which parcels were on deck.
- Check consent. If the cargo was carried on deck with the insured's knowledge or agreement, the insurer's position weakens considerably; if it was stowed on deck without consent, the carrier may be liable and the insurer may have a subrogated claim.
- Preserve the right to recover from the carrier. The agent should ensure notice of the loss is given to the carrier within the Hague-Visby time bar and that the insured does not sign a clean receipt or a settlement with the shipowner that would prejudice subrogation.
The correct professional response is to ask for the documents, not to give the insured a yes or no answer at the first call.