Swashplate Pty Ltd v Liberty Mutual Insurance Co (trading as Liberty International Underwriters)  FCAFC 137 (Federal Court of Australia, Full Court)
The Federal Court of Australia has provided helpful guidance on the relationship between the packing and preparation exclusion Clause 4.3 and the attachment of insurance under Clause 8.1 of the Institute Cargo Clauses (A) 1/1/09.
By a helicopter cargo insurance slip policy ("Policy"), arranged under a broker's master slip facility for risks attaching during the period 23 May 2017 to 22 May 2018 ("Facility"), the defendant Insurer agreed to insure the plaintiff Assured in respect of a containerised helicopter for a single transit by air between the United States and Australia.
The helicopter was moved into a hangar at the shipper's premises on 15 May 2018 to be dismantled for shipment. It remained there until about 15:00 hours local US time on 18 May 2018 when, in a more or less continuous process, the shipper's employees moved the helicopter out of the hangar, prepared it for loading, and stowed it in a container, which was loaded onto a lorry "shortly before" 17:00 hours which departed for the airport "at or shortly after" 17:00 hours.
The helicopter was damaged in transit.
It was agreed that this was because it was inadequately secured within the container.
The policy terms
The Policy provided
"Period of Insurance: From: 19 May 2018 To: Date of Arrival at Sunshine Coast Airport QLD" ("Period Clause").
Reflecting the Facility it was subject to the Institute Cargo Clauses (A) 01.01.2009 CL. 382 ("ICC (A)") and a "Static Cover Endorsement" providing
"Coverage is extended to include Static Cover for up to five days prior to loading" ("Static Cover Extension").
The ICC (A) relevantly provide:
"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"
"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 4.3")
"8. 8.1 Subject to Clause 11 below, 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,
continues during the ordinary course of transit
and terminates either …."
"11. 11.1 In order to recover under this insurance the Assured must have an insurable interest in the subject-matter insured at the time of the loss.
11.2 Subject to Clause 11.1 above, the Assured shall be entitled to recover for insured loss occurring during the period covered by this insurance, notwithstanding that the loss occurred before the contract of insurance was concluded, unless the Assured were aware of the loss and the Insurers were not." ("Clause 11")
The parties accepted that if stowage of the helicopter in the container was carried out prior to the attachment of the insurance the stowage was to be deemed as "packing" within Clause 4.3, and the loss was excluded. The Insurer argued that stowage was carried our prior to attachment of the insurance under the Period Clause and the Assured argued that stowage was carried out after attachment prior to loading under the Static Cover Extension.
The only question before the court was therefore as to the timing of the attachment of insurance under the Policy for the purposes of Clause 4.3.
Neither party's primary case was that the insurance attached under Clause 8.1 alone. However, they each advanced alternative arguments in case the Court determined that Clause 8.1 regulated attachment:
- The Assured argued that under Clause 8.1 the insurance attached before the helicopter was stowed in the container, when the helicopter was first moved into the hangar (on 15 May 2019); or, alternatively, when it was first moved within the hangar for the purpose of taking it outside to be placed in the container (at about 15:00 hours on 18 May 2018).
- The Insurer argued that under Clause 8.1 the insurance attached after the helicopter was stowed in the container, when the loaded container was first moved for the purpose of the immediate loading onto the truck shortly before 17:00 hours on 18 May 2019 for the commencement of the transit.
The Assured advanced a further argument that attachment under the Policy should be assessed by reference to Australian time, not local US time, which would again result in the insurance attaching before stowage of the container was carried out.
The first instance judgment
At first instance  1 Lloyd's Rep 592 the single Judge, Allsop CJ, held that, on a true construction of the insurance contract in its commercial and contractual context, including the Facility, the Period Clause had to be given contractual force and the Static Risk insurance (which logically preceded any attachment of risk upon first movement for the purpose of immediate loading under Clause 8.1) attached at 00:00 local US time on 19 May 2018 - after the helicopter had been stowed in the container. Accordingly, the stowage was deemed to be "packing" within Clause 4.3, , and the loss was excluded.
Although the Policy did not specify that the insurance would attach by reference to "local standard time", the Judge held that as the insurance was to attach by reference to an act in the US, namely "loading" under the Static Cover Extension, it is "most naturally assessed by local time" as was expressed by the acronym "LST" in the Facility.
The Judge stated, obiter, that if it had been necessary to determine attachment of the risk by reference to Clause 8.1 alone (which was not the case), the insurance would have attached at about 15:00 on 18 May 2019 local US time, when the helicopter was first moved in the hangar to take it outside to be stowed into the container for placement immediately thereafter on to a truck for immediate departure; thus "the immediacy required for Clause 8.1 was present or satisfied".
The Assured appealed to the Full Court.
The appeal judgment
The Insurer's case on appeal was that the insurance attached under the Period Clause from a point in time, i.e. 00:00 hours local US time on 19 May 2018, that commenced after transit was under way. The defective stowage of the container was carried our prior to such attachment of the insurance and was therefore deemed to be "packing", so Exclusion 4.3 applied to preclude recovery.
The Assured's case on appeal (as developed "to emphasise the significance of the Facility terms for the proper construction of the [Policy]") was that the insurance applied to the whole of the transit plus an additional period of up to 5 days before loading under the Static Cover Extension. The defective stowage was carried out within this period of insurance, after the risk had attached, the stowage was therefore not deemed to be "packing", so Exclusion 4.3 was inapplicable and the loss was covered.
On appeal neither party relied on "first movement" of the goods to attach the insurance under Clause 8.1 and the Judge's obiter statement as to the effect of Clause 8.1 alone was not considered by the Full Court..
The Full Court stated as follows in relation to the insurance cover
- The Facility as embodied in the master slip specified the terms, including the ICC (A), on which single transit cover would be provided during the stated period of insurance within which insurances could be placed under the Facility by the issue of a placement slip.
- The following characteristics of the ICC (A) were noted:
a. The ICC (A) took effect on 1 January 2009 as standard industry clauses that covered all risks for a single transit.
b. By their Duration provisions, including in particular Clause 8.1, the ICC (A) describe the circumstances in which the insurance will attach, prior to loading, from when the subject-matter was first moved for the purpose of immediate loading; continue during the ordinary course of transit; and terminate on completion of unloading or a point at which the subject-matter was placed in storage and the transit ceased (even if that was prior to arrival at the planned destination) according to the described terminating events.
c. By Clause 11 (to which Clause 8.1 is expressly subject) the ICC (A) contemplate the possibility that the insurance may be arranged after risk has attached under Clause 8.1, when the subject-matter has been first moved for the purpose of immediate loading. In that event, by Clause 11(2) there was cover unless the insured was aware of the loss and the insurer was not aware of the loss at the time the contract of insurance was concluded. Accordingly, under the ICC (A), the commencement of cover is not determined by the time of entry into the contract of insurance: it may start before then by a qualifying first movement of the goods.
d. By Clause 4.3, the ICC(A) exclude liability for loss or damage caused by defective packing prior to the attachment of the insurance, relying on the point of "attachment of this insurance" under Clause 8.1 to define the extent of the exclusion.
- The period of attachment of the insurance under the Facility pursuant to which the Policy was issued is defined by the terms of the ICC (A) by reference to a continuing and uninterrupted sequence of events by which the subject-matter insured undertakes a single transit from one place to another. The duration of the insurance so described begins and ends by reference to the timing of these events, not by reference to identified dates or the timing of when the particular insurance was arranged or agreed. The Period Clause in the Policy did not use the language of attachment and termination of risk which would be expected if specific dates were intended to replace the ICC (A) duration terminology, which would anyway be inconsistent with the Facility.
- It is necessary to consider the Static Cover Extension as well as Clause 8.1 to determine the commencement of cover. The Facility was subject to the ICC (A) with an extension for Static Cover of up to 5 days before "loading". The Static Cover was of the same kind as was afforded for transit cover. In context, it must refer to "loading" as described in the ICC (A), for insurance for "risk attaching" between specified dates. It did not contemplate cover commencing from a specified date but for a single transit commencing and terminating as described in the applicable ICC (A). Thus, the context for construing the Policy is one in which the Facility provides for voyage cover with a static cover extension, not for overall cover the commencement of which was to be established by reference to an agreed point in time.
- The period of insurance wording in the Facility provided for risk to attach in the manner described in the ICC (A). This was not a period that could be described definitively until first movement of the goods for immediate loading. The Assured could only provide an estimate of the expected date. The voyage and the subject-matter were the only matters expected to be specified in a placement slip under the Facility. It was not expected that a date would be specified when the Insurer went on risk: attachment of risk was addressed by the ICC (A) and Static Cover Extension.
- The Static Cover was not a compelling reason why the Insurer needed to know by reference to a specific date when the cover commenced. The Facility terms and incorporated ICC (A) agreed to provide insurance on a worldwide basis for the single transit of helicopters on terms that did not require certainty as to the dates of attachment or termination. That certainty was to be provided by the ICC (A) that described the events when the insurance attached and terminated. The Static Cover extended cover by up to 5 days calculated from the point of loading, not from a specified date, which had commercial logic
- In light of these considerations the Full Court concluded that the wording of the Period Clause in the Policy, "Period of Insurance: From: 19 May 2018 To: Date of Arrival at Sunshine Coast Airport QLD", should not be construed as specifying when the insurance cover was to attach and terminate, but the basis on which the transit fell within the period of insurance of the Facility. This interpretation did not deprive the Period Clause of significance, because if it transpired that the estimate of the expected date of attachment was not a genuine representation, that might affect the validity of the Policy (and so provide the Insurer with a potential defence based on a material misrepresentation).
- The Full Court accordingly reversed the first instance judgment and ruled that insurance under the Policy had attached prior to the improper stowage of the helicopter in the container, so that the stowage was not deemed to be "packing" within Clause 4.3, which accordingly did not apply: the loss was therefore covered.
- In arriving at its decision the Full Court concluded that "broad statutory distinctions" between a "voyage policy" and a "time policy" under the (Australian) Marine Insurance Act did not assist, because the Act recognised that a policy may be a "mixed policy" and the subject Policy could be described as such.
- Although it was unnecessary to determine the issue, the Full Court stated, obiter, that the Judge's ruling that the date and time to which reference should be made for attachment of insurance was the date where the relevant event occurred, which was appropriate in the context of a Policy providing for worldwide coverage.
Ultimately, this was a decision as to the way in which a bespoke clause, the Static Cover Extension, interacted with the standard provisions of the ICC (A).
Nevertheless, the decision provides interesting guidance as to the correct approach to construing bespoke and standard attachment provisions together, as to the nature and effect of the ICC (A) provisions for attachment of insurance by first movement of the goods for immediate loading, and as to the relationship between those provisions and "the time of attachment" of the insurance for the purposes of the deemed "packing" provisions of exclusion Clause 4.3.
Perhaps especially interesting is the Court's reminder that the ICC (A) expressly contemplate by Clause 11(2) that the insurance may be arranged after risk has attached under Clause 8.1, and that, in such a situation, so long as the Assured has an insurable interest at the time of the loss as required by Clause 11(1), the insurer will be on risk and liable unless the insured was aware of the loss and the insurer was not aware of the loss at the time the contract of insurance was concluded.
The first instance judgment is also interesting because the Judge's obiter remarks as to the effect of Clause 8.1 when applied to the facts of the case were not disapproved by the appellate court, and currently provide the only reported judicial treatment as to the effect of the new attachment provisions of Clause 8.1 since its revision in 2009.
To date, no English Court has had occasion to address the effect of packing and preparation exclusion clause 4.3, and it was necessary to look to the Australian decision of Helicopter Resources Pty Ltd v Sun Alliance Australia Ltd (The 'Ice Bird')  LMCLQ 21 for guidance on the meaning of "packing" and "preparation".
Once again, the Australian Courts have provided helpful guidance, this time on the likely effect of the attachment provisions of Clause 8.1 and as to the relationship between Clauses 4.3, 8.1 and 11 of the ICC (A).
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.