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Is an insurance company liable for “Fear of Loss/Peril”?

In general, an insurance company is liable for losses proximately caused by an insured peril. “Fear of Loss/Peril” does not constitute a peril in itself, so an insurance company is not liable for a loss proximately caused by an uninsured peril, even though the loss would not have arisen other than through fear of an insured peril. This principle does not, however, absolve an insurance company of its liability for litigation and labour charges, salvage charges or general average contributions when properly incurred to prevent loss from a factual peril.

For example, Mr. Chan has taken out a marine cargo policy for transporting preserved food packed in PVC vacuum bags. When he opened the container, he noticed a bad smell coming from the container. Being afraid that the contents had been damaged, he refused to receive the goods and asked for compensation from his insurance company. There was no evidence showing that the goods were actually damaged as Mr. Chan was reluctant to open the carton or employ a loss adjuster to conduct a survey. In order to facilitate a claim, we suggest that Mr. Chan should open the carton or employ a loss adjuster to investigate if the goods were really damaged.

To enjoy better protection, customers should:

  • Declare the characteristics and features of the insured cargo to their insurance company when making a marine cargo insurance application.
  • Pack the cargo in a proper and sufficient manner, e.g. wooden boxes, which provide better protection than paper boxes or waterproof packing.
  • Declare the nature of the goods to the carrier so that they can handle the cargo with care.
  • Carefully check the container's past history before loading cargo to ensure that it will not be contaminated.

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