HWL Ebsworth Lawyers – Detailed case note
Swashplate Pty Ltd (‘Swashplate‘) acquired two Bell 427 helicopters in the United States of America and imported them into Australia. Both were damaged in transit when they moved in their containers due to inadequate packing, either because the temporary wheels installed for the journey were not chocked in their final stowage position, or there was inadequate strapping employed.
The insurer respondent, Liberty International Underwriters (‘Liberty‘), accepted responsibility for one helicopter (‘the Accepted Helicopter‘) but rejected the other (‘the Disputed Helicopter‘) on the basis that the inadequacy of packing took place before the attachment of the relevant Aviation Helicopter Single Transit policy. That timing was crucial for the operation of one of the exclusions in the policy.
The key issue before the Federal Court of Australia was whether Swashplate was entitled to indemnity for the cost of repairs to the Disputed Helicopter for damage sustained during transit.
His Honour Chief Justice Allsop answered that question ‘no’ for the reasons set out below.
Following their purchase by Swashplate, the two helicopters were shipped from Picayune, Mississippi to Maroochydore, Queensland. Importantly, in May 2018, Local Standard Time (‘LST‘) in Picayune was 15 hours behind Australian Eastern Standard Time (‘AEST‘). For instance, 5:00pm Friday 18 May 2018 LST was 8:00am Saturday 19 May 2018 AEST.
The container used to ship the Disputed Helicopter arrived at 3:00pm on 18 May 2018 LST, being 6:00am 19 May 2018 AEST. The Disputed Helicopter was pushed into that container on temporary wheels and tied down. Chocks were not applied. At about 5:00pm LST, the container was loaded onto a truck, which promptly departed for the Port of New Orleans.
The container used for the Accepted Helicopter arrived at 8:00am on 19 May 2018 LST. The same loading process took place and again chocks to the helicopter’s temporary wheels were omitted. The Accepted Helicopter was transported to New Orleans at about 10:00am LST.
Around the time the packing of the helicopters was underway, Swashplate’s broker liaised with an employee of Liberty to arrange transit insurance for both aircraft. Importantly, the stage of transit was not discussed and by the time Liberty issued cover for the helicopters, the Disputed Helicopter was already on its way to New Orleans. As a result, the date from which cover commenced was not set in the context of the position of the helicopters. Rather, the inception date was simply stated on the placement slip as 19 May 2018.
Policy documents and terms
Swashplate’s broker had submitted placement slips under an insurance facility with Liberty. This facility was recorded by a Master Slip, which envisaged a specific single transit policy for each helicopter and identified the relevant Liberty policy wording to be used. In turn, the policy wording incorporated the 2009 Institute Cargo Clauses (A) CL.382 01.01.09 (‘the 2009 ICC (A)‘).
The period of insurance listed on the operative placement slip for the Disputed Helicopter was as follows:
From: 19 May 2018
To: Date of Arrival at Sunshine Coast Airport QLD
While the Master Slip referred to LST (Local Standard Time), as can be seen above the placement slip made no reference to LST.
Clause 1 of the 2009 ICC (A), which was incorporated by the policy wording, provided for the risks covered as follows:
1. This insurance covers all risks of loss of or damage to the subject-matter insured except as excluded by the provisions of Clauses 4, 5, 6 and 7 below.
Clause 4.3 of the 2009 ICC (A) excluded loss caused by insufficient or unsuitable packing carried out before the attachment of the insurance as follows:
4. In no case shall this insurance cover.
4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses “packing” shall be deemed to include stowage in a container and “employees” shall not include independent contractors).
Clause 8, which dealt with attachment of the policy, relevantly provided:
This insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit…
The Master Slip and the placement slip contained the following pre transit extension for what was referred to as ‘Static Cover’:
Coverage is extended to include Static Cover for up to 5 days prior to loading.
Federal Court Decision
Swashplate’s entitlement to indemnity hinged upon the timing of the attachment of the policy for the Disputed Helicopter.
It was found that the damage to the helicopter was caused by insufficiency of packing namely the failure to chock the temporary wheels in their final stowage position and insufficient or unsuitable strapping.
Swashplate needed to establish that this inadequate packing was carried out after the attachment of insurance so that the Clause 4.3 packing exclusion would not apply to deny the claim.
Swashplate submitted that:
- The reference ‘From: 19 May 2018‘ in the placement slip was not contractually binding, but merely anticipated the commencement of transit. The words used were indicative and non-contractual; or
- The phrase ‘period of insurance‘ and ‘From: 19 May 2018‘ was to be understood to be a reference to AEST, not Mississippi time; and
- The effect of the Static Cover extension was such that the policy attached five days before the actual loading of the Disputed Helicopter, specifically 13 May 2018 LST/14 May 2018 AEST.
In response, Liberty contended that:
- The words ‘Period of Insurance: From 19 May 2018‘ should be given contractual effect such that insurance attached only at 12am on 19 May 2018;
- The reference to 19 May 2018, consistent with the wording of the Master Slip, was a reference to Local Standard Time in Mississippi and not AEST. As such, the insurance attached after the packing had been completed at 5pm on 18 May 2018; and
- As to the Static Cover extension, the provision contained the words ‘up to’ and thus represented a flexible period and was not a mandatory retrospective declaration of the time of attachment.
Chief Justice Allsop agreed with Liberty and held that:
- Reading the various contractual documents together as a whole, and giving effect where possible to all provisions, Swashplate’s approach failed to give contractual force and operation to the words ‘period of insurance‘ on the placement slip and did not appropriately recognise the effect of the Static Cover extension;
- Swashplate’s proposed construction would not give Liberty, as the underwriter, any clear knowledge of when it went on risk for Static Cover until it was known when loading occurred;
- As the extent of Static Cover was to be calculated by a local Picayune act (that is, the loading of the Disputed Helicopter) and the Master Slip expressly referred to LST, the date on the placement slip was to be construed by reference to Picayune time; and
- This approach gave effect to the whole policy and gave a clear and certain time for when the pre-loading property risk would attach.
Accordingly, Allsop CJ held that the packing exclusion in Clause 4.3 applied. The inadequate packing of the Disputed Helicopter occurred prior to the attachment of the insurance and as such Swashplate was not entitled to indemnity.
The decision demonstrates the consequences of insufficient communication between interested parties, particularly where the cover sought relates to potential risks in different time zones.
In the context of transit insurance, it demonstrates the importance of ensuring that cover is in place before critical steps which might trigger exclusions (such as packing) have been performed. This depends upon clear communication between the insured and their broker regarding critical dates and steps in the transit process.
The decision also emphasises that where cover is sought for activities taking place across different time zones, placement documents should clearly identify the date of commencement of cover with reference to a specified time zone to reduce uncertainty as to the operation of the policy and relevant exclusions.
Written by Chris Sacré, Partner, James McIntyre, Special Counsel) and Benjamin Pool, Solicitor.