An Unremarkable Decision?
Should the Freight Forwarder “match” his exposures with his Insurance Cover?
In April 2010, the Court of Appeal granted an appeal of a decision which at first glance may appear to be of limited application to freight forwarding agents, but upon closer inspection may have a wider impact on all insurance intermediaries.
In July 2009, ABC(freight forwarding agents) were found liable at first instance to LMN(the seller) who had, in turn, been found liable to XYZ(the consignee) for the loss of two specialized Land Rover ambulances. The ambulances washed overboard in December 2006, in the Bay of Biscay, en route to a drilling exploration site in Libya. They were delivered to the vessel unpacked, unprotected and uncontainerised. Unbeknownst to all involved, the carrier had stowed the vehicles on deck, notwithstanding a booking confirmation which stated:
“ALL VEHICLES WILL BE SHIPPED WITH ON DECK OPTION this will be remarked on your original bill of lading.”
Because the carrier did not state on the bill of lading that the vehicles were carried on deck, the freight forwarder believed that the vehicles had been shipped under deck and warranted such to their cargo insurers. When it was discovered that the vehicles had been shipped on deck, the cargo insurers rejected the claim.
The buyer pursued the carrier, who paid a sum in excess of eight times the Hague-Visby limit of liability, roughly equivalent to the value of the lost vehicles. However, the buyer had further losses as they did not buy replacement ambulances, but rented them locally.
The buyer brought a claim against the seller for this balance on the basis that they failed to procure effective insurance in accordance with the terms of the CIP (Carriage and Insurance Paid) sale contract. The seller, in turn, brought a claim against the freight forwarder. Referring to a text book on sale of goods, in relation to the period of insurance for a policy presented under a letter of credit, the buyer claimed that a term had to be implied into the CIP sale contract that the contracts of carriage and insurance must “match”.
The buyer argued that the standard liberty clause allowing deck carriage in the terms on the reverse of the bill of lading was what was referred to on the booking confirmation as the “remark” on the bill of lading. They further argued that the contract of carriage allowed shipment on deck and, in giving a warranty that the goods would be shipped under deck, the freight forwarder acted negligently as the insurance did not match the contract of carriage.
The judge at first instance agreed with the buyer and ordered the freight forwarder to pay damages.
The freight forwarder appealed on the basis that the reference to “remarking” in the booking confirmation did not refer to the standard liberty clause in the terms and conditions on the reverse of the bill of lading, but, instead, meant that the carrier was obliged to remark the front of the bill if he was going to carry on deck. If the carrier had done so, then on deck insurance would have been arranged. The freight forwarder also argued that the giving of the warranty was irrelevant and not causative of the loss, as under an Incoterms CIP contract, the buyer is only entitled to insurance on ICC (C) terms, which does not cover goods washed overboard in any event. The freight forwarder also argued that there was no implied term that the contracts of insurance and carriage “match”.
The Court of Appeal agreed with the freight forwarder. They held that the booking confirmation was part of the contract and its terms obliged the carrier to notify the freight forwarder if they were going to stow the goods on deck by remarking the front of the bill of lading. If they had done so, appropriate insurance would have been arranged. Further, the CIP insurance requirements were express and, without agreement, there was no implied obligation to “match” the insurance with the contract of carriage. The Court of Appeal did find that the freight forwarder should have checked to see if the carrier had breached, or was intending to breach its contract by stowing on deck without remarking the bill of lading. However, they also held that this failure was not causative of any loss as the insurance contracted for would never have covered the claim in any event.
This decision is of importance for two reasons. First, under the original decision, freight forwarders and those that arrange insurance for CIP/CIF sales contracts had to ensure that the contract of insurance “matched” the contract of carriage. This effectively meant that, if the cargo insurers rejected the claim for any reason other than an act of the seller/buyer, the freight forwarder or insurance intermediary would, presumably, be liable for the loss. This responsibility would be very onerous, particularly given the modest fees generally charged by freight forwarders and the Court of Appeal has removed this exposure.
Second, the Court of Appeal held that the contract was for under deck shipment, unless the carrier remarked the bill of lading and, therefore, upon receiving the unremarked bills, the freight forwarders were justified in forming the view that the goods had not been carried on deck. However, it was also held that the freight forwarder was still negligent in warranting that the goods were carried under deck without checking this with the carrier. The Court found that, as a breach of warranty entitles an insurer to be discharged from liability even if the breach is not causative of the loss, freight forwarders and insurance intermediaries must take steps to ensure warranted facts are true, even where it could only not be true if the carrier or other third party had or intended to breach its contract.
In this situation the negligence did not cause any loss, but in other situations it could and, therefore, freight forwarders and all insurance intermediaries should be warned to take all steps possible to confirm the correct position before giving any warranties to insurers.
This article was first published by Risk International, October 2010.
Takis Kalogerakos
Marine Underwriter
I had a good time here but will return to google now.
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