Sunday 18th Nov, 2018

INDUSTRY OPINION: The right insurance key in major incidents

Photo: Ian Ackerman
Photo: Ian Ackerman

RECENT major incidents such as the loss of 83 containers from YM Efficiency and fire on board Maersk Honam expose the potential risks faced by all parties involved in the transport chain. Working in the background protecting these parties is a variety of insurance policies.

With the loss of containers overboard, the marine cargo insurance position should be straight forward if the correct cover has been arranged. Zurich, a global marine insurer, has already paid out to some cargo owners with goods on board YM Efficiency.

“As our insured’s container was confirmed lost by multiple sources, there was no point wasting time or delaying settlement, so we proceeded to settle the claim,” said Allwyn D’Souza, senior marine claims advisor at Zurich, who managed the case.

“Once our lawyers and the shipping company confirmed the loss we were proactive in managing the claim as quickly as possible. We were the first insurer to settle a claim for this high profile case,” D’Souza said.

There is the possibility that, in the months to come, recovery claims may be sought by cargo insurers against other parties. Known as subrogation, the cargo interest passes its rights to claim onto its insurer to make claims on its behalf.

Recovery claims may be made against forwarders and/or non-vessel owning common carriers (NVOCC) that would usually be protected by a freight forwarders liability policy. These parties and their insurers will look to pass claims to the ship operator, which will refer to its Protection and Indemnity insurers (P&I Clubs) and parties such as stevedores, if they were to be drawn in, will be covered by a liability policy specific to their services.

Losses arising from the fire on board Maersk Honam are estimated to be in the hundreds of millions of dollars. Insurance policies will be required to respond in terms of the cargo, containers and the ship plus the liabilities that flow from the event. Again the initial claims will be settled by the cargo insurers, with potential recoveries insured for forwarders, NVOCCs and the ship operators. The response involves cargo insurers, insurers of containers, hull insurers, insurers of freight forwarders/NVOCCs, P&I Clubs and marine liability insurers.

One of the key parts of cargo insurance is its ability to respond to the General Average (GA) and Salvage costs incurred by the insured. The combined GA and Salvage security requirements have likely been set somewhere in the range of 40%-50% of the CIF value of the cargo.

Without a cargo insurer to provide the required security, the cargo owner would need to provide a cash deposit to the tune of 40%-50% of the CIF value of its cargo in order to obtain release. Eventually, often many years after the event, insurers will settle these costs on behalf of the parties originally involved.

These extreme events highlight that insurance, in conjunction with legal concepts like GA, enable companies to accept the risk inherent in moving cargo around the world without having to worry that their bottom line will be seriously, or even irreparably, affected. They also allow companies to continue to deal with one another amicably by taking the commercial sting out of the losses incurred.

*Iain Sharples is the national manager for marine and transport liability at Zurich Insurance Australia Ltd. If you have any queries regarding your insurance arrangements, please contact your insurance broker.

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