The issues
The recent Full Federal Court decision in Swashplate Pty Ltd v Liberty Mutual Insurance Company trading as Liberty International Underwriters [2020] FCAFC 137 demonstrates again the importance of careful use of words by both underwriters and brokers when placing insurance.
The case concerned the insurance of the carriage of a helicopter from the US to Australia on 2009 Institute Cargo Clauses (A) (ICC(A)). The helicopter was inadequately chocked in its container, resulting in movement and damage during transit.
The Insurer maintained that the packing had taken place prior to attachment of the insurance such that Insurers could rely on the insufficiency of packing exclusion at Clause 4.3 of ICC(A) to decline the claim. If the packing took place after the insurance attached then the exclusion did not operate to exclude the loss.
The dispute therefore focused on when the insurance had attached.
The helicopter had been packed into the container on 18 May 2018 between 3 pm and 5 pm local time in Mississippi / 6 am to 8 am on 19 May 2018 on the Australian East Coast.
The placing slip issued by Insurers stated “Period of Insurance: From 19 May 2018“.
The Insurer maintained that the insurance had attached at 12 am on 19 May 2018 local (i.e. Mississippi) time such that packing had taken place prior to attachment of the insurance.
At first instance, Chief Justice Allsop found in favour of Insurers. A key element in the decision at first instance was that the words “Period of Insurance: From 19 May 2018” on the placement slip were plain and should be given their operative effect.
Please click here if you wish to read our bulletin on the first instance decision.
The appeal
On appeal, the Insured argued that, rather than commencing on a specified date, coverage was as set out in the Master Slip i.e. for the whole of the transit plus a period of static cover prior to loading.
The Full Court of the Federal Court overturned the first instance decision and found in favour of the Insured for the following reasons:
- The Master Slip refers to clause 8.1 of ICC(A), which provides “this insurance attaches from the time the subject-matter insured is first moved in the warehouse“. The Court noted that the scope of the facility was defined on the basis that the insurance would attach in the manner provided for in ICC(A);
- Interpreting the placement slip in a manner that resulted in the risk attaching by reference to a specific date was inconsistent with the type of insurance contemplated by the facility and would be a different risk. The policy contemplated was a voyage policy rather than a time policy;
- The words “period of insurance” was not the language of attachment of risk and termination of risk which would be expected if specifying dates intended to replace the terminology of the policy set out in the ICC(A);
- The expression “inception date” did not mean “coverage date” because the word inception is commonly used to describe the starting point of an activity and not the commencement of a liability or obligation;
- The expression ‘bound with effect from” does not mean that the coverage attaches or commences on the given date, it simply means that agreement is taken to have been made on that date;
- The ICC(A) expressly contemplates that insurance might be arranged after the risk has attached. There was an exclusion for liability if the insured was aware of the loss and the insurer was not aware of the loss at the time the contract was concluded;
- The facility was for insurance of risks attaching between specified dates but did not contemplate cover that commenced from a nominating date. The facility provided cover for a single transit, the duration of which commenced and terminated as described in ICC(A) i.e. when the subject-matter insured is first moved in the warehouse or the place of storage for the purpose of loading; and
- The Court noted that the interpretation contended by insurers would fundamentally alter the nature of the cover of the subject of the facility agreed, namely from providing cover for single transit of helicopters on terms that did not require certainty as to dates to one which required specified dates of cover commencing.
In obiter, with regard to the reference to local time in the master slip, the Full Court noted that commencement of cover related to when a certain event occurred (movement for loading) which might occur anywhere in the world. Accordingly, the Court found that this reference was best explained by an intention to refer to the time at the place where the event occurred.
Lessons learnt
The case is an important reminder for brokers and underwriters operating insurance facilities to clearly understand how the facilities are intended to operate with regard to attachment of risk and ensure that the risks are placed in a manner that is consistent with the terms of the master facility.
If the placing slip is intended to provide that coverage under a voyage policy will commence at a certain time, rather than when the transit commences (or otherwise provided by the policy wording), the Insurer must use clear words and refer to the time of “attachment” or “commencement of cover”.
The case is also a reminder that more often than not the Court will try to achieve the fair commercial result if the applicable law permits it. This is a case where the decision at first instance, although arguably correct, did not appear to reflect the commercial expectations of the parties when the risk was placed.
The HWL Ebsworth Transport team are specialists in marine insurance servicing the majority of Australia’s marine insurance market including P&I, H&M, Cargo, Pleasurecraft and Liability risks. If you have any questions regarding this or any other marine insurance issue do not hesitate to contact the writers or your usual transport team contact.
This article was written by Chris Sacré and James McIntyre, Special Counsel.
