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Cargo insurance: “Unseaworthiness and Unfitness Exclusion Clause”

Mr. Ko purchased insurance under Institute Cargo Clauses A (ICC (A)) for a shipment of shirts. The shipment was delivered by sea from Hong Kong to the USA, and Mr. Ko appointed a forwarder to load the goods into the container for shipping. However, when the goods arrived in the USA, he found that some of the shirts had been damaged by water.

According to the surveyor’s report, an obvious old crack was found in the door of the container and the inner part of the door was rusted. In this case, can the insurance company decline Mr. Ko’s claim based on Clause 5 “Unseaworthiness and Unfitness Exclusion Clause” in ICC (A)?

The “Unseaworthiness and Unfitness Exclusion Clause”:

“In no case shall this insurance cover loss, damage or expense arising from … … unfitness of … … conveyance container or liftvan for the safe carriage of the subject-matter insured … … where the Assured or their servants are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein.”

As the goods were loaded by a forwarder, not by Mr. Ko nor his staff, the insurance company probably cannot decline his claim on the basis of the “Unseaworthiness and Unfitness Exclusion Clause”, unless they can prove that Mr. Ko or his employees were aware of the old crack when the goods were loaded. Therefore, Mr. Ko’s damaged goods can be recovered from his cargo insurer.

If customers appoint forwarders to load goods for them, they should choose a reputable and experienced forwarder as they are normally more reliable. If customers prefer to load the goods by themselves, they should check carefully if the container is in sound condition in order to minimise loss and to fulfil the policy terms.

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