Does Marine policy cover storage Risk

 

 

 

Introduction:

The client often approaches the underwriters to grant storage cover at the intermediate places in conjunction with marine transit policy.  Such storage at intermediate places is normally done at Port warehouses, Transit sheds, Bonded warehouses, Carriers’ go down, Clearing and Forwarding Agent’s godown, Railway platform, Railway Yard etc. Apart from the above, storage is also done at warehouses owned or hired by the client. The storage at different places is normally done for containerization, allocation, distribution, consolidation, processing, bagging operation of the goods etc. 

 

Sometimes, the client elect to store the cargo in the Customs Bonded warehouse due to lack of funds with which to effect payment of import duty on cargo and/or at Carrier’s godown due to non-availability of the insured’s  own storage accommodation  and/or at Clearing and forwarding agent’s godown for processing the documents after arrival of the vessel. Although such types of storage are within the control of the client but it is now a common demand in the marine insurance market to issue a single seamless transit policy alongwith the storage risks. 

 

Thus, it has to be considered by the marine underwriters as to whether it will be a prudent decision to grant   storage cover at intermediate places inconjunction with marine transit policy if so, the total period of storage and risks to be covered. 

 

Whether intermediate storage is covered under Marine policy

Item no 8.1 of Clause 8 of Institute Cargo clause provides that upon delivery to the Assured/consignees or at any other final place of storage at the destination named in the policy, the cover will be terminated. The termination of transit under the particular clause also takes place if the assured elects to use the storage place either,

(i) For storage other than in the ordinary course of transit.

(ii) For allocation or distribution.

 

Looking at storage other than ordinary course of transit, an example would be where  movement of goods is deliberately stopped by an assured at an intermediate warehouse  perhaps because the original warehouse is full and/or used for the allocation or distribution  for the purpose of braking down the consignment  into smaller units for onward transit. Since marine policy does not cover such storage risk, the cover under the marine policy will terminate as soon as the storage is effected voluntarily.

 

However,  Multi Transit and intermediate storage cover  for a maximum period of 56 days  may be granted  to the client  as  per Rule X of  erstwhile All India Marine Cargo Tariff  if such storage is done for the purpose of allocation, distribution and processing only. 

 

Moreover, the cover during storage at Carriers’ godown, Bonded warehouse, Clearing and Forwarding Agent’s godown are also generally granted if the client is compelled to keep the materials therein due to unavoidable circumstances like transport strike, Port strike, delay due to examination and assessment of  duty on the goods  by the Customs Authorities etc. 

 

Since storage at any godowns is not automatic, the extension of storage cover should not be granted at the inception of cover, other than multi transit with intermediate storage cover. In case of unavoidable circumstances, the client should approach the underwriters for extension of storage cover with suitable reasons for such storage prior to expiry of the policy.

 

Type of losses occur during storage

The Bulk cargo like coal, coke, fertilizers, ammonia, iron ore etc. is stored in open after discharge from the vessel.    Since the coast line is notoriously rainy and windy particularly in India, some quantity of cargo is blown/swept away due to strong wind and rain. 

 

The cargo is also damaged when the same is crushed with the types of the heavy vehicles/pay loader during movement of the vehicles around the storage place/port area. Theft of materials may also occur by shifting of cargo with the help of pay loader from one plot to another plot. Such shortage in quantity is also shown in the books of accounts of the client on account of multiple handling loss,non-sweeping of cargo and embedded stock. 

 

Agro products like Sugar, Maize, Pulses, Rice, Wheat etc are generally stored in the transit shed, railway platform, railway yard  before loading and/or after unloading.  Such types of perishable cargo are stored in open or in areas not covered in all sides including roof. The damage to cargo due to rain, theft, pilferage, bursting and tearing of bags during loading/unloading is the common cause of damage whilst stored in open. Moreover, storage in damp/wet places specially at the railway sidings, platforms, transit shedss spoils the cargo to a great extent. The cargo during storage may also be damaged due to direct contact  with acids, chemicals, pesticides and other foreign substances scattered therein.

 

The perishable cargo is additionally prone to damage due to infestation,bacterial damage, mould, solidification and contamination during storage since various types of cargo are also kept with the perishable items. Rats and vermin may also consume goods considerably. It is also to be noted that in some of the railway sidings, the labourer used to unload the bags containing perishable items like sugar, maize, wheat etc.from the wagons preparing the stair cases with the same bags. The footmarks of the labourer and subsequent staining of bags during storage cause rejection of cargo by the buyers.

 

Sophisticated machinery and equipment, specially project cargo, are sometimes stored in open at port of loading/discharge awaiting shipment/clearance for onward journey. If machineries are lying unprotected for a considerable period, the machineries are most likely to be damaged due to rain. The machineries may also be submerged due to flooding at the place of storage.  

 

The serious damage to the sophisticated machineries can not be avoided even if the same is stuffed into a containers. The non functioning of sophisticated machine may also cause due to absorption of moisture while stored in open. The damage to the machineries due to rusting, corrosion, oxidation and pitting may be caused due to the effect of the  weather around the coastline. Since port is a notorious place for theft and pilferage, the possibility of such happening can hardly be ruled out.

 

Cement stored in open at Railway yard/platform/transit sheds will be liable for water damage even if   the same is covered by polythene sheets. The strong wind and sudden rain fall may cause serious damage to cement bags whilst stored therein. Since cement is hygroscopic in nature, it absorbs water vapour from the air that solidifies the cement in bags.

 

Cotton in bales is stored in open at   railway yard, railway platform and   CFS awaiting further transportation and/or stuffing into the containers for export shipment. During storage in open, the underwriters experience serious fire damage to cotton  due to falling of crackers and/or throwing of end portion of burning cigarettes/biddies/match sticks on to the cotton stack.

 

The cotton stored in open is also prone to damage due to rain , mud, acids, dusts, and grits. The cotton bales may swell due to absorption of water vapour causing increase in volume to the extent of 40-45%.

 

Underwriting considerations

The following underwriting precautions to be adopted by the underwriters:

1. Marine underwriters should not encourage storage cover during transit. It is to be noted that, storage during transit under the marine policy within the control of the insured is not a marine risk. The underwriters may not get Fac Re-insurance support for such storage risks exceeding their capacity and even treaty support for risks within their capacity.

 

2. The marine underwriters may wish to issue marine policy for export/import shipment up to the intermediate storage points and continue to cover the transit risk for onward journey after the completion of storage period. The underwriters may issue separate Standard Fire and Special peril policy and Burglary policy during storage period as per terms and conditions of the respective policies.

 

3. The underwriters may wish to arrange for pre-dispatch survey of the consignment prior to dispatch of the consignment from the designated storage places by IRDA categorized “A” surveyors/Lloyd surveyors at the assured’s cost. If pre-dispatch survey is not possible for any reason, the loss or damage to the cargo may only be covered under extreme circumstances and subject to restricted policy coverage i.e ICC-B.

 

4. The temporary storage at Railway yard, platform, transit sheds during loading and/or after unloading of consignment from the Railway wagons/vehicle scan not be avoided for practical purpose since such accumulation is developed during ordinary course of transit. The underwriters should not allow rain water damage, theft and pilferage during  storage in open even in ordinary course of transit. The loss or damage to fire during storage in open shall not be covered.

 

5. The storage at Carrier’s godown, bonded ware house, clearing and forwarding agent’s godown may be granted where the insureds are unable to take delivery of the goods due to the reasons beyond their control. Such storage cover is not automatic and can not be granted at the inception of cover. The extension of such storage cover can be granted for 8 weeks in addition to 7/60/30 days if the insureds give prompt notice to the underwriters prior to expiry of policy period.

 

6. The multi transit and storage cover for the purpose of allocation, distribution, processing can be granted under Open policy. The storage places should be covered in all sides including roof and cover shall be restricted to Fire and allied perils and burglary only for a maximum period of 8 weeks(56 days) only at all go-downs put together.

 

Conclusion:

It is pertinent to remember that risk exposure during storage is 100% i.e. if there is a fire the resultant loss would be total loss. The quality of warehouses/go-downs in India is also a concern. In some places the construction of go-downs/warehouses may not be RCC built. If warehouses/go-downs are in the low land, the flooding of consignment due to heavy downpour shall  be a common affair. 

 

It is impractical to insist on pre-acceptance survey of all go-downs/warehouses but an attempt can be made   to survey (either in-house or by approved surveyors) at least some large locations involving considerable value at risk.

 

To provide a seamless storage cover to the customer is fine in theory but practically it greatly increases the exposure of the insurer and the reinsurers are also reluctant  in accepting storage exposure within marine. 

 

 The client may, therefore, be suitably explained that marine policy does not cover any voluntary storage during transit and if such storage is done, the cover under marine policy will terminate automatically.

 

Author-Sumon Ganguly