UK: Practical Issues In Pursuing Subrogation Claims Against Forwarding Agents And Carriers

Cargo insurance is a widespread form insurance because of the high risks involved in transportation and this insurance helps to minimize the consequences of such risk.

Having paid the indemnity for cargo loss or damage, insurance companies often face different problems in the course of recovery of subrogation claims. This article addresses some of the problems and issues that arise in pursuit of such claims.

Claim procedure

Not all insurers pay insurance indemnity for cargo loss or damage only after receipt from the insured or beneficiary of all the documents necessary to pursue the subrogation claim against the carrier or forwarding agent. It is quite common for the insurer to indemnify the insured / beneficiary quite soon after the insured event occurs and at a time when a properly formalized claim has not been presented to the carrier or forwarder. In this situation the insurer is responsible for compliance with the pre-action claim procedure.

Having paid the indemnity, the insurer takes the place of the insured or beneficiary in the relationship with the party responsible for the loss or damage. Therefore, until a subrogation claim is initiated in court, the insurer should comply with the pre-action claim procedure and all the applicable limitation periods, which, for claims arising from transportation and forwarding activities, are less (one year) than the three year general time limit for claims.

Pre-action claims connected with transportation can be presented to the carrier anytime within the limitation period of 1 year.

However, Motor Transport Charter includes a provision that a carrier shall be given 30 days to consider the pre-action claim. The consequence of this is the reduction of the 1 year time limit to initiate court action to less than 11 months. If the pre-action claim is presented to the domestic carrier with less than 30 days before the 1 year time limit is due to expire, there is a very high risk that the court will dismiss the claim without consideration, with the result that the subrogated insurer loses its right to pursue its subrogated claim.

As to claims against forwarding agents, in accordance with paragraph 4 of Article 12 of the Federal Law "On Forwarding Activity" pre-action claims against a forwarding agent should be presented within 6 months from the day when the right to claim occurred.

One of the usual grounds for forwarding agents to reject an insurer's claim and a common submission in statements of defence filed in court actions, is failure to comply with the pre-action claim procedure, namely that the claimant failed to present its claim to the forwarding agent (defendant) within the 6 month time limit under Article 12 of the law "On Forwarding activity". In such cases, the forwarding agent usually seeks a ruling from the court that the claim be dismissed without consideration.

However, uniform court practice (examples below) is that the 6 month period is not preclusive and so does not prevent the filing of a claim in court.

  • Decision of the Arbitrazh Court of Moscow dated 01.02.2011 in Case No. А40-121792/2010
  • Ruling of the Federal Arbitrazh Court of North-West district dated 28.01.2010 in Case No. А56-16351/2009
  • Ruling of the 17th Arbitrazh Court of Appeal dated 15.01.2010 in Case No. А60-24458/2009
  • Ruling of the 9th Arbitrazh Court of Appeal dated 29.05.2009 in Case No. А40-79757/08
  • Ruling of the 9th Arbitrazh Court of Appeal dated 04.05.2008 in Case No. А40-56211/07 and many other judicial acts

In addition to compliance with the time limits for presentation of pre-action claims, it is also important to comply with the requirements for preparation of pre-action claims, as stipulated by Article 39 of the Motor Transport Charter and Article 12 of the Federal Law "On Forwarding Activity". The worst consequence of violation of these requirements can be the dismissal of the claim without consideration by the court.

Further, compliance with the pre-action claim procedure can be instrumental in assisting an amicable settlement of claims with willing contractors without having to resort to court. Otherwise, any breach of the official procedure provides grounds, at worst, to have a claim dismissed without consideration, which is fatal if the time limit for the claim has expired.

Apart from failure to comply with pre-action time limits, the usual reasons for seeking a ruling that the court dismiss a claim without consideration or for defending a claim are failure to comply with pre-action procedures by the:

  • Absence of power of attorney to sign a claim
  • Absence of documents confirming the right to claim (for an insurer these include proof of payment of the indemnity to the insured / beneficiary)
  • Absence of documents confirming the insured / beneficiary was the contracting party with the carrier / forwarding agent
  • Absence of documents confirming the quantity and cost of cargo
  • Service of uncertified copies of documents

Limitation period

The limitation period for claims in connection with transportation and forwarding activity is 1 year. Although the Motor Transport Charters indicate that this period starts from the day of occurrence of the event which gives rise to the claim, disputes often arise in the course of the claim consideration by the court, as to when the limitation period starts to run.

Disputes concerning the start of the limitation period are more typical in forwarding activities as the Law "On Forwarding Activity" provides that the period starts from the day when a right to claim is discovered (Article 13). The courts usually interpret that as the day when a person learned that their right has been violated. Following are examples of uniform court practice on this issue:

  • Ruling of the Federal Arbitration Court of Moscow region dated 28.03.2012 in Case No. А40-13259/11
  • Ruling of the Federal Arbitration Court of North-West district dated 21.12.2011 in Case No. А56-72930/2010
  • Ruling of the Federal Arbitration Court of Ural district dated 20.04.2011 in Case No. А60-20974/2010 and other judicial acts

As will be known by insurers, the limitation periods for subrogation claims will be the limitation periods applicable to the original liability.

In conclusion, it is important to bear in mind the possibility that the applicable limitation period is less than the general limitation period of 3 years under the Russian Civil Code, and also that the applicable limitation period may be further reduced by pre-action time limits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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