United Arab Emirates: How Does Marine Cargo Insurance In The UAE Respond To Carrier Insolvency?

When Hanjin Shipping went into administration in late 2016, reportedly over 500,000 containers were stranded or arrested at ports worldwide, including many in the Middle East. Cargo owners who find themselves in such circumstances can be critically affected (particularly if the cargo is temperature sensitive, perishable or urgently required), and they will often look to their cargo insurers. This note highlights a number of issues which are likely to arise when a carrier becomes insolvent during a laden voyage, and claims are made under a marine cargo policy in the UAE.

Background - Marine cargo insurance in the UAE

As in many other global maritime hubs, cargo insurance is frequently underwritten in the UAE on the basis of the prevailing Lloyd's Market Association and International Underwriting Association's standard wordings, known as the Institute Cargo Clauses (ICC). 

Although UAE law strictly speaking requires all insurance policies to be issued in Arabic, in practice, many cargo policies are issued in English only.  Typically they will incorporate ICC by reference, along with other applicable market clauses, conditions and warranties.

Policies are also often silent on the issue of the governing law and jurisdiction. Although the ICC state that it is "...subject to English law and practice", this does not ordinarily confer jurisdiction.  For instance, if an assured is domiciled in the UAE or the insured cargo is loaded or discharged in the UAE, this would ordinarily permit a UAE Court to accept jurisdiction of any dispute arising (in accordance with UAE Federal Law No. 11 of 1992). 

Therefore, in the event that coverage litigation is commenced in the UAE, the ICC are likely to be interpreted as part of the overall policy in a different way to how an English court would approach the same exercise.

The starting point for a UAE Court would be to apply the relevant provisions of Federal Law No. 26 of 1981 (the Maritime Code), Federal Law No. 5 of 1985 (the Civil Code), and Federal Law No. 6 of 2007 (the Insurance Law) when considering the meaning of the ICC and the policy as a whole.  As proceedings are conducted solely in Arabic, it would also be necessary to translate the policy wording and ICC, which can potentially cause some of the nuances in the original text to be lost.

Claims for physical loss or damage to cargo due to delay generally

If an assured's cargo is stranded on-board a vessel which has been arrested, prevented from entering port or otherwise delayed, an initial question is at what point can the assured seek a recovery under its cargo insurance and for which losses? This is of particular significance where the delays in delivery lead to the cargo perishing.

A policy incorporating the ICC(A) is often described as an "all risks" policy, meaning, in short, that it covers all risks of physical loss and damage to the cargo, except for the specific exclusions identified. It is sufficient for the assured to demonstrate that the loss was due to a fortuitous external casualty, and not a specific named peril.  The ICC(A) cover is however, subject to a "transit clause" (Clause 8) which specifies when the insurance attaches and terminates.

As a matter of English law where losses are "caused by" the delay, they are not generally covered (Clause 4.5 of ICC(A)). For instance, if a consignment of perishable goods passed the sell by date during a period of delay, the marine cargo policy would not ordinarily respond to cover the reduction in price at the port of delivery when the goods eventually arrived.

However, the insurance cover itself will continue during the period of the delay as long as: (i) the voyage is not terminated in accordance with Clause 8.1; and (ii) the contract of carriage is not terminated in accordance with Clause 9 of ICC(A). On this basis, if the same goods were damaged by fire or water ingress during the delay period, this physical damage to the goods would likely be covered.

Clause 9 provides that the insurance will also terminate unless prompt notice is given to insurers and a continuation of cover is requested, for which an additional premium is payable. However, there is no established precedent as to how UAE courts interpret these provisions, which are determined on a case by case basis.

Claims for physical loss or damage to cargo where a vessel has become arrested or stranded where the carrier is insolvent

Where the reason for the delay is the insolvency of the carrier, there are additional considerations and exceptions to be found in ICC(A).

Clause 4.6 of the most recent version of ICC(A) (1/1/2009) states that the following losses are to be excluded from cover:

"Loss damage or expense caused by insolvency or financial default of the owners managers charterers or operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel, the Assured are aware, or in the ordinary course of business should be aware, that such insolvency or financial default could prevent the normal prosecution of the voyage..."

On this basis, if the assured was aware (or should have been aware through the ordinary course of business) at the time of loading that the carrier was likely to become insolvent, insurers could look to rely upon this exclusion. 

If insurers were to rely upon this in a UAE court, they would have the burden of evidencing this by way of adducing documentation (legally translated into Arabic) as UAE civil courts do not usually consider witness evidence as part of their determination of cases. In the context of Hanjin for instance, the rehabilitation proceedings and insolvency took most of the shipping industry by surprise, and it would be challenging for an insurer to adduced documentary evidence as to the assured's knowledge at the time of loading.

However it is worthwhile noting that Clause 4.6 in the older version of ICC(A) (1/1/1982), which is still very much in use in the UAE and Middle East, has a much wider insolvency exclusion:

"loss damage or expense arising from insolvency or financial default of the owners managers charterers or operators of the vessel..."

If this version of the ICC(A) is incorporated into the policy, the insurer need only prove that the loss "arose from" the insolvency of the carrier.  This places the insurer in a stronger position.

In addition to the loss of the value of the damaged cargo, many insureds will also incur additional costs in having the cargo unloaded, forwarded, stored and released. Some of these charges (assuming that they are properly and reasonably incurred) may be recoverable under ICC(A) 1/1/2009 by virtue of clauses 12 and 16.  However, this is probably less so under the older 1982 wording where insolvency is unlikely to be an insured peril.

Summary

On this basis of the above, any claims made under cargo policies involving vessels which are arrested or stranded in the UAE due to the insolvency of the carrier are likely to be complex cases.

Coverage from a UAE law perspective will turn on the particular facts, applicable version of ICC(A) (with the older 1982 version being more favourable to insurers), and other specific policy wordings used.

An additional challenge for parties litigating in the UAE will be obtaining documentary evidence of the loss in circumstances where the insolvent carrier and its agents may not be responsive to such requests

This article was co-written by Richard Clarke who is an Associate in the Clyde & Co Dubai office.

How Does Marine Cargo Insurance In The UAE Respond To Carrier Insolvency?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.