Stuck In The Suez: The impact upon marine insurance covers
In this blog we review an article published by AON on the consequences of the Suez Canal incident for Insurance coverage; and we spoke with Jose López de los Reyes, regional leader for Latin America of Marine Fac at Aon Reinsurance Solutions about the role of reinsurance in this situation.
You can consult the original article at: https://www.aon.com/apac/insights/blog/stuck-in-the-suez.jsp
OVERVIEW
IN-DEPTH
m/v EVER GIVEN
- H&M:
– Though understood to not be severe, damages to the vessel as a result of the grounding will give rise to a H&M claim.
– Salvage operations as a result of the grounding would be added to the claim, and the salvage award will be borne by H&M underwriters.
– General Average costs will certainly be incurred in order to complete the common adventure, and these would be recoverable from cargo interests as per the New Jason Clause. Due to the volume of packages on board and Bills issued, owners could have opted, depending on their H&M conditions, to recover these funds from H&M underwriters through their General Average Absorption Clause. The vessel has now formally declared General Average.
- P&I:
– Any cargo damage will be covered by the vessel’s P&I Club. As the cargo is not thought to be damaged due to the grounding, presumably this will mainly be relevant for perishable cargo.
– Consequential loss of late delivery (of sound cargo) is not covered. In any case, this will likely be excluded under the relevant Force Majeure provisions and the Hague/Hague-Visby Rules.
– Fines imposed by the Suez Canal Authority could be covered under Rule 2, Section 22.
– Unrecoverable General Average contributions (e.g. from H&M, Cargo interests) are covered. It will be interesting to see, now that the vessel has declared a GA, to what extent this Rule will be used.
– Damage to the Suez Canal itself (e.g. the banks of the canal) would be covered as a result of a collision to a fixed or floating object.
– There is an argument of third party liability, i.e. a duty of care, to other vessels and their cargo, in tort. Such an action would have to be heard by the Egyptian courts, under Egyptian Law. Even following English Law and the Tort of Negligence, a claimant’s argument would be difficult to prove.
– There is a strong argument that consequential damages i.e. business interruption to the canal as a result of the blockage, would also be covered as a result of the same FFO peril.
– Should this be the case, the collision claim would quickly become a claim on the International Group Pooling Agreement.
- Loss of Hire (if purchased)
– There is a valid claim under the policy subject to the excess period – generally 7 days for Japanese shipowners, with typical limits of 90, 120 or 180 days.
- Delay Insurance (if purchased)
– There is a valid claim (Grounding, Collision) under the policy subject to the excess period, typically 4 days with limits of 10-20 days.
All other vessels:
- H&M:
– As no damage has arisen to any other vessels, no H&M claims are expected.
- P&I:
– Cargo claims are expected for perishable cargo, and these are expected to be covered by the vessels’ P&I Clubs, with recourse action potentially being taken against the owners of the m/v EVER GIVEN and their P&I Club.
– Consequential loss of late delivery (of sound cargo) is not covered. As mentioned above, this would likely be excluded under the HR/HVR.
– As the m/v EVER GIVEN sat in the Suez and its quick recovery looked unlikely, several vessels set sail for a passage around the Cape of Good Hope. Such a voyage would at the very least raise the question of deviation or the duty of utmost despatch, and the legal issues that come with it, as well as the unprejudiced continuance of Club cover.
– The journey around the Capes is more dangerous by nature, and hence if any cargo was damaged as a result of the more perilous journey, Clubs would have had to agree to this in advance for members to enjoy uninterrupted Club cover.
- Loss of Hire (if purchased)
– With no H&M damage, owners’ Loss of Hire policies would not be triggered.
- Delay Insurance (if purchased)
– Delay Insurance would be triggered as the blockage of the canal constitutes a physical obstruction to a navigable waterway, a covered peril for Shoreside events. This is typically subject to a 1-day excess period and limit of up to 20 days.
We live in an extremely interconnected world that, despite the great benefits, is becoming increasingly fragile and vulnerable, where every event that takes place in the world has an almost immediate effect on the global economy and on the Insurance Industry itself. It has become clear once again, and there are few of us in recent years, that the insurance sector must provide effective solutions that help clients continue to operate relatively normally after these types of events.
The blockade of the Suez Canal that took place at the end of March this year not only put the international market in check as a consequence, for example, of delays in the deliveries of tens of thousands of containers and possible stock breakages; but to the entire Insurance Industry for the very important losses that are estimated. It is one of those historical milestones where all of us who are part of the sector must be at the height, not only because of how we understand and solve this fact itself, but because we must take a step forward and reflect on the products that exist in the market, and if these are adjusted to events of such a great impact as this for the economies of companies and countries in general.
It would be positive to take advantage of the current media focus (although it may be ephemeral, as almost always in these cases) and the (over?) Exposure of the Industry with a view to the resolution of this event, to continue evolving and transforming the existing coverage according to the real needs of customers. For this, the figure of the Reinsurance broker must play a crucial role in that we must serve as a link between the problems and realities that our clients experience on a day-to-day basis, and the Reinsurers, who are the ones who, ultimately, must adapt to offer the necessary solutions. Are our clients aware of the risks to which they are really exposed? Are our clients well advised? Could such an event happen in the Panama Canal? And if so, are we ready? We have already seen the many coverages that could be affected, but are we sure that there are products on the market that fit all your needs? And, if not, is there the interest of the industry in providing these coverage? It is our duty to advise our clients and continue to provide necessary solutions that adapt to current circumstances.
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