My kingdom for a professional marine insurance broker
The loss and damage caused to local businesses by July’s civil commotion in Gauteng and KwaZulu-Natal places the spotlight on the invaluable role that insurers and insurance brokers play in restoring an economy post-catastrophe. At the same time, the potential overlap of Sasria covers with sections of traditional marine cargo insurance contracts underlines the need for professional risk advice when purchasing or renewing non-life insurance covers… As you will learn in the following paragraphs, this advice is equally necessary when assessing and registering a complex commercial loss or damages claim.
A civil discussion on civil (sic) commotion
On 29 July 2021 we attended a Norton Rose Fulbright ‘virtual coffee session’ to learn more about the insurance consequences following events that took place in South Africa between 9 and 19 July. The firm’s marine and shipping team spent some time reflecting on whether the losses suffered were due to civil commotion, insurrection or riot before unpacking the cover implications of the unrest on clauses in marine insurance contracts. The fast-paced and extremely technical webinar touched on various clauses specific to marine insurance, collectively referred to as ‘Institute’ clauses. Common Institute clauses include Cargo, War and Strike clauses, and there are well over 100 clauses dealing with specific cargoes.
We loved the title that Andrew Robinson, Chairman, and Donald Dinnie, Director: Insurance Litigation at Norton Rose Fulbright chose for their slide presentation: ‘A civil discussion about issues of insurance without all the commotion’. Their first port of call, pun intended, was to assess how the courts might describe the recent unrest, with a view to determine whether marine insurers or the state-owned, special risks insurer Sasria SOC Limited, would indemnify insureds.
Sasria cover attaches to an underlying insurance policy and is designed to bring back cover for certain exclusions named on the underlying policy. “Sasria is a government insurer that was established as a response to the 1976 Soweto uprising and damages that occurred at the time; the cover given by the original Sasria coupon included clear political links and definitions,” said Dinnie. The original coupon wordings have since been amended to include definitions sans the political undertones, although Sasria still covers the traditional political risks in its wording, as follows:
- Civil commotion: Large-scale violence by members of the public, causing injury to people or damage to property.
- Looting: To steal goods, typically during a riot, strike or civil commotion. Looting must take place during an event that Sasria covers. Sasria does not cover theft.
- Public disorder: A riot or other civil commotion that gives rise to a serious risk to public safety, whether at a single location or resulting from a series of incidents in the same or different locations.
- Riot: In terms of case law, riot means the tumultuous disturbance of public peace by an assembly of three or more persons acting together in the execution of some private objective.
Civil commotion cracks the nod, mostly…
One could rank these definitions in order of their seriousness, starting with riot, then civil commotion and finally, public disorder. Dinnie explained that Sasria required a number of elements to be present before it would entertain a loss or damages claim under the riot peril, namely that three or more persons were assembled with the same objective; that there was a tumultuous disturbance of the public peace that led to strife, violence or threats of violence; and physical loss or damage. “Aside from the strange debate of whether you need three or more people to form a riot, we can all agree that by-and-large many of the recent events will qualify as a Sasria-insured peril,” he said. This view has already been confirmed by Cedric Masondo, MD of Sasria, who indicated that the unrest would be viewed as civil commotion, which is a valid trigger for Sasria cover.
It is in any case possible to argue that any of the aforementioned perils – civil commotion, looting, riots or public disorder – were triggered by the recent unrest. And this meant that Sasria cover should “largely and on the face of it” respond for physical damage and, if included on the insureds’ Sasria coupon, material damage business interruption losses. It will, however, be interesting to see how commercial insurance policies without Sasria cover respond to malicious damage or theft claims. “On the face of it, the fire section of the underlying policy may respond, subject to Sasria exclusions … and the same can be said in terms of theft, or malicious damage cover,” said Dinnie. But each potential claim will have to be assessed in line with the policy wordings and the specific facts surrounding the loss event.
Complex cargo covers…
The introductory remarks to the presentation, which was skewed towards cargo, logistics and shipping covers, confirmed a complex marine insurance environment in which firms had a mixture of Institute Cargo, War and Strike clauses, with most insureds also having the fallback cover provided by Sasria. An important observation was that differences in Stock Throughput wordings could prove make-or-break for commercial insureds following recent loss events.
“Stock Throughput clauses are the chimera of the marine transit world,” said Robinson. “They can best be described as an attempt to effect ‘static risk’ cover for goods in transit, but at marine rates and for marine risks, which are usually both cheaper and broader in scope that the usual static risk cover,” said Robinson. These clauses are useful in insuring product that is processed or is stored for consolidation or distribution purposes. Cover during processing is excluded; but the storage is covered. A ‘normal’ marine policy will not cover the storage of goods unless the goods are in the ordinary course of transit.
Robinson said that Cargo clauses were usually based on 1982 or 2009 wordings, before encouraging brokers and risk managers to pay close attention to the duration clauses on their contracts, and to the type of policy in place. He also pointed out that the so-called all-risks ICC (A) clauses contained “a strange lumping together of exclusions [such as] loss or damage caused by civil war, revolution rebellion insurrection, and all civil strife therefrom, strikes, lockouts, labour disturbances, riots or civil commotions, persons acting from a political motive”.
These exclusions are then covered under the War Risk or Strike clauses, the latter being somewhat of a misnomer. The earlier warning around duration should be considered in the War Risk clause context, because the clause only gives cover if the goods are either loaded on board, on board or waiting to be discharged… “War Risk cover is very limited and there is no land-based portion unless you extend the duration; these clauses are of limited use for insuring cargo while discharged, in warehouse or in the ordinary course of transit after discharge,” said Robinson.
Strike clauses offer warehouse to warehouse cover, including storage whilst in the ordinary course of transit; excluding war risks on the land-side; and including land-side and water borne cover for loss or damage caused by strikes, lockouts, labour disturbances, riots or civil commotion and any terrorist or person acting from a political motive. Whether or not Cargo clauses perform following the recent unrest will, as always, hinge on the loss event ‘satisfying’ the clause’s peril definitions. Accepted definitions for ‘rebellion’ and ‘revolution’ are not helpful in this regard, leaving only ‘insurrection’. According to Norton Rose Fulbright there are elements in the recent civil commotion that might satisfy the insurrection definition, which case is made stronger by government’s use of the word in recent comments to the media.
On cover overlaps and contribution
There is a possibility, in the transit space, that an insured could be on cover on both its commercial or marine insurance contract and Sasria’s coupon. Transit cover is available on goods in transit, inland transit, marine cargo and stock throughput (transit risks only) policies as well as other policies pertaining to loss or damage of property in transit within South Africa. In such cases the insurer and Sasria would need to agree on contribution, with each carrying a share of the loss. “We expect that would be a 50% contribution on the basis that the cover and the wording is pretty much the same,” concluded Robinson. “But it will depend on what is in the marine cargo policy versus what is under the Sasria coupon; what is excluded in one and included in the other”.
Writer’s thoughts:
There is nothing like listening to marine insurance experts to reassess one’s own understanding of the workings of the insurance industry. Are you involved in writing marine insurance covers? And if not would you want to give it a try, given the complex environment set out in today’s newsletter? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
