Since cargo owners can be held responsible for the potential of damage or loss that their goods could cause while in transit, they are advised to establish exactly what their insurance policies will (or won’t) cover
Many cargo owners are aware of the risk of damage to, or loss of, their goods in transit and ensure that they have suitable insurance policies in place to cover possible mishaps. Most transporters also have liability insurance in place to cover their responsibility for cargoes that are lost or damaged while in their care.
However, sometimes a cargo, itself, causes damage to property belonging to a third party. For example, it can cause damage to ships, other cargo, containers, port facilities, vehicles, or road infrastructure. Who is liable for this damage and is it covered by insurance?
The issue of damage caused by cargo is most commonly seen in ocean transport when a fire occurs on board a vessel. Such fires are frequently caused by the incorrect declaration of containerised chemicals – such as calcium hypochlorite – which can cause severe damage to other cargo on board as well as to the ship itself.
A similar principle applies where goods transported by road cause damage to the vehicle transporting the cargo, or to goods owned by other parties – particularly in groupage shipments. Equally, a cargo can cause damage to roads or the environment during transportation.
Where the damage to third party property occurs as a result of the fault of the transporter, the third party may have a claim against the transporter and the liability may be covered under the transporter’s liability insurance.
However, where damage is caused by the fault of the cargo owner, then the third party may look to the cargo owner to recover losses or, alternatively, the transporter may look to the cargo owner to make good the claim. Additionally, some pollution legislation imposes liability on various parties in the logistics chain irrespective of whether damage caused was their fault.
Many cargo owners incorrectly assume that their marine insurance policy covers them against the possibility of being held liable if their cargo causes damage to the property of another. Most cargo is insured under Institute Cargo Clauses, which cover a cargo owner for damage caused to his or her goods – but which, exceptional circumstances apart, do not cover the cargo owner’s liability to third parties.
One issue with cargo liability insurance is that it can be prohibitively expensive. In the case of cargo insurance, the marine cargo insurer knows that, if there is damage to the insured cargo, the extent of the insurer’s exposure is limited to roughly the value of the cargo.
However, a cargo liability insurer could face claims amounting to millions of rand in the event that the insured goods cause damage to a ship or other cargo. Because potential exposure is high, the premium for liability insurance may be sufficiently expensive for cargo owners to think it is uneconomical.
Cargo owners need to be aware that they can be held responsible for the potential of damage or loss that their goods could cause to port property, vessels, or to other goods in transit or in port. In this respect it is wise for them to know exactly what their insurance policies will (or won’t) cover.