Bailees' Insurance On Cargo Stored Ashore - A Necessary General Average Expense?

 December 2001

A laden vessel deviates to a port of refuge as a consequence of accidental damage sustained during the voyage and the repairs necessary to enable her to continue the voyage to destination in safety, require the temporary storage of the cargo ashore.

The vessel’s P&I liability insurers recommend to the owners that bailees’ insurance be arranged on their behalf. Their reasoning is that the discharge of the cargo is, prima-facie, a deviation from the voyage that the owners have contracted to perform. They consider that an insurance against the owners’ potential liability to the cargo interests and for loss or damage to the cargo, is a duty that the owners have, by law or by custom, as bailee of the cargo. The liability insurers suggest that additional cover be put in place to ensure that there is no gap in the owners’ existing liability insurance arrangements that may not protect them in this situation.

Having declared general average as a result of the necessary deviation into the port of refuge, the owners may expect that the premium on the insurance, recommended by the liability insurers would be allowable in general average.

A number of points arise from the advice received by the owners.

Firstly, the question as to whether the deviation is justifiable in terms of the contract of affreightment. If the expenditure arising from the decisions to resort to the port of refuge and to off-load the cargo there and store it whilst repairs necessary to complete the voyage were effected, are properly admissible under the York-Antwerp Rules, Rules X and XI, we would regard this as prima-facie evidence that the deviation is justifiable. By arranging storage of the cargo at the port of refuge whilst arrangements are made to continue the voyage to destination, owners demonstrate that they are acting reasonably to properly keep and care for the cargo in their charge. There may be defences available to the cargo interests, under the contract of carriage, and arising from the reasons for the deviation of the vessel from her proper course, but such contractual defences will not affect the fundamental point that a deviation that satisfies the criterion for allowing a deviation in terms of Rules X and XI is almost certainly justifiable in terms of the contract of affreightment. Even in the event of a successful defence being raised by cargo, by pleading a breach of the contract of carriage by the owners, the usual terms of entry with a vessel’s liability insurers will entitle the owners to recover cargo’s proportion of the general average in such circumstances.

Next, the advice from the liability insurers indicates that the cover taken out on behalf of owners is solely an insurance against their potential liability to the cargo interests in the event of a breach of some duty, whether as a bailee or otherwise. The definition of general average in Rule A of the York-Antwerp Rules requires that the extraordinary sacrifice or expenditure, which is the subject of allowance, is made or incurred for the common safety of property involved in the maritime adventure. It cannot be argued with conviction that it is reasonable to allow in general average the cost of insuring the potential liability of one party to the common maritime adventure to another. A claim against the owners for negligence in the handling of cargo is a matter for owners’ liability insurance cover, not general average.

As to insuring the cargo itself against loss or damage, although in storage, whilst Rule X(c) admits the cost of this insurance, if reasonably incurred, it is considered that such insurance as envisaged by this Rule and if arranged, is more than likely to be a re-insurance of a risk already covered by standard cargo insurance conditions placed on the goods on board. The cargo interests had taken already the decision, when the voyage commenced, as to whether or not to insure their cargo against normal risks during a justifiable deviation. However, in circumstances where a vessel is carrying general cargo, involving many separate cargo interests, time may not permit owners to make enquiries of all the cargo interests as to whether or not they already have insurance in place that permits cover to remain in force during any variation of the adventure arising after the exercise of a liberty granted to owners under the contract of affreightment. In such instances, it would be prudent to arrange limited insurance for the storage risk, for the benefit of the general average interests.

But where one is concerned with a bulk cargo, involving a limited number of cargo interests, it is considered that storage insurance admissible in general average in accordance with Rule X(c), whilst the cargo is stored ashore or in lighters, is only necessary if required by the concerned in cargo. As it is arguably a reasonably simple matter to ascertain from the cargo interests whether or not they require the storage risk to be specifically insured.

 

With thanks to Harvey Ashby Limited for supplying this article.