Cargo & Stock Throughput Case Scenarios

Understanding different types of insurance claims and how they relate to various insurance products can be helpful. Being able to identify possible exposures or gaps in coverage can be useful information when assessing coverage needs.

The information below is a general summary of the cited claim. Please refer to the citation itself for a complete copy of the cited claim. Additionally, the Claims Summary is not an affirmative statement as to the availability of insurance coverage for a particular Client or insured. Please refer to the actual terms of your policy or quotation regarding definitive terms and conditions of coverage.

CLAIMS SUMMARY 1

An international distributor of electrical supplies had secured a marine cargo insurance policy before circuit breakers were shipped. The electrical distributor had contracted with a freight forwarder to arrange for the storage and transportation of circuit breakers from Miami, Florida to El Salvador. Twenty-three of the circuit breakers were damaged by water either before or during transport to El Salvador for use in an infrastructure project. A policy exclusion for deck cargo was provided. The parties disputed how the breakers were damaged. The insurer argued that the circuit breakers were damaged from the rain caused by Hurricane Irma while awaiting shipment the electrical supplies distributor contended that such damage occurred while in transit to El Salvador. The next issue was whether full cover or stranding cover applied based on the terms of the policy. At this stage of the proceedings, the Court determined that stranding cover applied to the circuit breakers that were stored in open-top containers, and that full cover would be provided for the other cargo. Even though the insurance policy initially provided for full cover, certain exclusions were also included. The case proceeded to trial to establish exactly when the breakers were damaged to determine if policy coverage would attach; the policy specified that the goods would have had to be removed from their last place of storage for transit to be covered. View Citation >

DID YOU KNOW: Cargo insurance policies can cover goods transported by sea. The cargo here involved electrical circuit breakers to be used in an infrastructure project in El Salvador. Here, the products suffered water damage.

CLAIMS SUMMARY 1

A commercial fresh produce seller primarily prepares and packages peppers and beans for distribution for retail sale at grocery stores or through wholesale food service companies. The fresh vegetable seller either uses its own seeds or those purchased from third-party seed providers, and the vegetables are either grown on its own property or through a third-party plant grower. Once the vegetables are harvested, they are transported to a cooled storage facility and then packaged for sale. Some of the vegetables are packaged in plastic, and then those vegetables are transported to a Florida facility for distribution to its customers. The fresh produce seller secured a marine cargo policy for its domestic shipments of green beans and peppers that were moved by field dump trucks to a packing house. When Hurricane Irma struck, the fresh produce seller sought coverage for the damages it incurred from the hurricane under the policy, including the loss of vegetables stored in the packing house as well as the seedlings growing in a greenhouse, the plantings impacted in the produce seller’s fields, and damage to the field plastic coverings. The insurer agreed to cover the vegetable loss within the coolers but denied coverage for seedling, planting, or plastic covering damages since those costs would not constitute damage to goods in transit. Here, the Court determined that the seedlings, planted crops, and plastic crop coverings were not goods in transit, and, therefore, were not covered under the policy. Location coverage did not apply because the planted crops, seedlings, and crop covers were not stored in a covered location, and crop coverage was not included in the policy. However, goods and merchandise in transit or located within a storage facility as part of the transit process were covered, resulting in coverage for approximately $1.3 million lost produce stored in cooled storage, but coverage for the planted crops with an estimated value of between $5 to 9 million was not covered under the policy. View Citation >

DID YOU KNOW: Domestic transit insurance covers goods transported by land, including via trucks, barges, and aircraft. Here, the marine cargo insurance for domestic transit included coverage for goods stored in cooled storage during transit. The coverage extended from when the vegetables were transported via dump trucks in the field to a packing house as part of the goods “in transit” process. Essentially, the court determined the goods were in “due course of transit,” and, therefore, covered under the domestic transit policy even though they were at a temporary location.

CLAIMS SUMMARY 1

A shipment of pre-manufactured hotel rooms/modules was shipped from Poland to Seattle, Washington, and suffered water damage at one of the ports and at the hotel’s construction site. Once the modules were unloaded, a crane operator’s strike resulted in transportation delays from the port to the hotel construction site. During the strike, the modules were located outside without a protective cover and suffered water damage. Both the general contractor and manufacturer/shipper/installer of the modular hospitality spaces paid millions of dollars in water damage remediation costs. Coverages under two separate insurance policies, a master builders’ risk policy/ “all risk” insurance policy and a marine open cargo policy, were sought.
The claims submitted to the two insurers totaled approximately $53,295,965 in damages. The marine open cargo insurer denied coverage. Subject to a reservation of rights, the builder’s risk insurer paid approximately $15,235,811 to the general contractor. A total of $4,547,599 of this $15,235,811 payment made to the general contractor was to be directed to the additional insured subcontractor. Following this, the builders’ risk insurer halted the review process, and subsequent payments on the outstanding $19.5 million claim remained outstanding; coverage was later denied. The builders’ risk insurer argued that coverage for the water remediation was only available for the modules once they left the port and were delivered to the hotel construction site; the contractor and the manufacturer argued that such coverage extended to the water damage incurred at the port. The builders’ risk insurer sought a proportionate share of the liability from the marine open cargo insurer. The Court determined that the builder’s risk policy did not cover the losses that occurred while the modules were at the port. The subcontractor’s additional insured status at the construction site was available; however, this did not extend to offsite activities, including the port delay. Under the terms of the contract, the subcontractor was responsible for protecting and insuring the hotel room modules. Ultimately, the Court found that the builders’ risk insurer could proceed with its action based on an equitable contribution from the marine cargo insurer. The builders’ risk insurer had paid an estimated $4.5 million to the subcontractor for harm suffered at the hotel construction site, which the Court noted could have been potentially covered under the marine cargo policy. View Citation >

DID YOU KNOW: Project cargo insurance is a type of specialized cargo insurance that provides coverage for unique and complex shipments that do not fit within the standard cargo insurance policies. This example shows how additional coverage, such as war and strike coverage, can help to mitigate losses not usually covered under a standard cargo policy. As was the case here, the pre-manufactured hotel rooms were oversized and heavy items, and project cargo insurance can include coverage for damages associated with transport delays and storage.

CLAIMS SUMMARY 1

A soap manufacturer sought coverage under stock throughput “all-risk” policies when damage resulted to its soap because a wrong formula was used. More potassium hydroxide was used than required, and contamination of the product resulted. This soap contamination lasted for roughly six months, and ultimately resulted in a product recall. The extra potassium hydroxide caused unpleasant odors, discoloration, and even skin irritation. The damages incurred from the contaminated soap totaled $3,856,364. Even though the claim was initially denied, the soap manufacturer argued that coverage was available for the soap contamination under the policies’ conditions clause because its terms insure against multiple types of damage and the duration clause. The stock throughput insurers argued that the exclusions within the process clause, which pertained to packing, processing, assembly, renovation or repair, would prevent coverage. The Court found that the contamination losses of the soap manufacturer from the excess potassium hydroxide were covered under the policies, and the process clause did not exclude coverage for such a claim. While there was debate as to whether the damage was caused solely by the process, there was a carve out to the exclusion to allow for coverage if covered elsewhere. The court awarded $3,856,364 in damages, which did not include prejudgment interest. This example shows how a stock throughput policy can include coverages for various stages throughout the supply chain. View Citation >

DID YOU KNOW: A stock throughput policy can insure all stock, including raw materials, semi-finished and finished products, whether in transit or storage at owned or third-party premises. As the example above shows, a stock throughput policy can include coverages for various stages throughout the supply chain. The soap was a finished product, but became contaminated when the product formula was not followed appropriately, resulting in a costly product recall.

CLAIMS SUMMARY 2

A fabric company needed to temporarily store both fabric and plush merchandise in a warehouse, and it secured an ocean cargo insurance policy that included a storage endorsement. Under the policy, a list of scheduled warehouse storage locations was provided, and goods were lost at one of the listed warehouse locations. The goods lost totaled an estimated $1,172,731, and the fabric company filed a claim for the lost goods. The owner/operator of the warehouse had filed for bankruptcy, and the fabric company’s goods were lost when the holdings of the warehouse owner/operator were liquidated in closing sales. In response, the insurer denied coverage for the lost goods. The Court found that the lost goods were covered under the policy here. The storage endorsement included provided coverage in the amount of $1,250,000, which was the estimated value of the fabric company’s goods stored at the affected warehouse. No policy exclusion was applicable here under the all-risk policy involved. Because the fabric company had initiated litigation against the warehouse owner/operator, this resulted in a cost savings for the insurer and the lost profits that the fabric company recovered would not need to be factored into the damages award to reduce the recovery pro rata. Therefore, the fabrics company was able to recover $2,006,814 for its losses. This case shows how recovery was available here for products that were lost in a scheduled warehouse. View Citation >

DID YOU KNOW: A stock throughput policy can include coverage for loss of goods in a scheduled warehouse. Here, the lost goods at one of the scheduled warehouses totaled over $1,000,000 and were covered under the policy.

For more information on how a claim may relate to your specific risk, connect with a member of our team.