ICC Digital Library Forum

T.O.,

Good news, I agree wth you on something! Namely your 1st & 2nd paragraphs above.

Jeremy

T. O.

By their nature, humans are fallible. We can strive for perfection, but it is rather elusive. Even if we could draft a revision of UCP which we considered perfect, the use of even a single language varies by location, not only around the world, but even within its country of origin. So it is very difficult to "please all of the people all of the time". It is perhaps appropriate therefore that we take account of Murphy's Law.

Laurence

After having done a quick survey on the insurance market practice regarding the steel industry, I am more confident that this exclusion is the norm and not the exception. I mean to say that insurance companies exclude such risks because they falls within the inherent vice exclusion in the ICC (A). All the companies I asked in Jordan and Saudi Arabia said the same and confirmed that they exclude such risks in their ICC (A) insurance policy. The wording of these companies reads as follows “ICC (A) excluding rust, oxidization and colouration unless caused by insured perils”

Needless to mention “stranding, sinking, burning, collision and/or heavy weather” are covered by the ICC (A). This meets the requirement in the credit and if the customer is willing to insure against those perils he should be prepared to pay an additional premium.

THANKS TO HATEM GOING TO THE KITCHEN TO FIND OUT THE FACTS

Well said by Hatem. Here is what he has found out from his little research. We always encourage people to go to the kitchen to find out the facts rather than giving empty guesses or talks from his own perspectives. This would not help resolving the disputes but rather to give further confusions.

QUOTE

“The wording of these companies reads as follows “ICC (A) excluding rust, oxidization and colouration unless caused by insured perils”

Needless to mention “stranding, sinking, burning, collision and/or heavy weather” are covered by the ICC (A).”

UNQUOTE

RUST PROXIMATELY CASUED BY COVERED PERILS

That means if the rust is PROXIMATELY (an insurance jargon, but for simplicity sake, shall we take it to mean “directly” or "originally" here although its real meaning and implications may need a small lecture to explain?) caused by the insured perils such as “stranding, sinking, burning, collision and/or heavy weather”, the insurance company will pay in spite of the rider that says rust is not included.

RUST PROXIMATELY CAUSED BY INHERENCE VICE

If the rust is proximately caused by “inherent vice” (“internal weakness”, the “default” nature of the steel goods to get rusted in a humid and hot environment, such as the high sea), then the insurance company will not pay because the rust is not proximately caused by the covered perils.

SOME RUSTS ARE PAID DESPITE THE RIDER TO EXCLUDE RUSTS

So even when we have rust, if we can prove that the rust is directly caused by the cover risks, we still get paid when the steel goods are rusty on arrival. So what the bankers are afraid of? And the insurers are very fair. They pay for rust when they are directly caused by the insured perils.

Insurers and Carriers have the practice to assign the consultants to claim against the Carriers or the Insurers (as the case may be) for them because of the complication in maritime and cargo claims. The terms are on contingency basis. If the claims are successful, the consultant gets 25% of the paid amount (not necessarily the claimed amount). If the claims are not successful, the consultant gets nothing. Some smart consultants would not take the offer unless all the claims in a year are to be assigned to him. Why? Otherwise the smart Carriers and Insurers would give the easy cases to their friends and the difficult cases to other consultants they meet in the workshops.

So our firend Laurence, be careful when you are approached by the Insurers you meet in your workshops.

www.toee.com

[edited 5/5/02 6:39:32 PM]

Hatem & T.O.,

Firstly, welcome back from Jordan, Hatem. I trust your visit went well.

Secondly, all the above is -sincerely- most interesting. However, I cannot see that it alters the correctness of the conclusion of Opinion R360, given bankers -at least under English law- are not required to have any knowledge of particular trades.

Jeremy

Jeremy

Do not be obstinate, because this information on the insurance market practices on steel industry is just for illumination and guidance. The main discussion is under UCP 500 assuming that document checker does not know anything about insurance practice, however there is nothing in UCP to support the conclusion that such exclusion is discrepant, simply because UCP does not detail the standards coverage and acceptable exclusions to be stated in an insurance policy.

For me, a document checker so ignorant about insurance is just like a fish out of the sea.

My trip to Jordan was excellent, I wish we could meet again and recall in person the good old days in Amsterdam.

Regards

T. O. raises an interesting point about the cause of the rust determining whether or not it is covered. It reminds me of a case which I read about some years ago in which an metals importer examined a shipment on the quayside and, finding rust on part of the shipment, made an insurance claim. The vessels captain was adamant that there was no rust when the goods left the ship (goods carried loose stow). There had been no rain between the time of offloading and examination by the importer. The insurance assessor had the task of determining the cause of rust in order to advise if the rust was covered by insurance or not. Does anybody remember the details of this case and the cause of the rust or would like to guess? If nobody answers in a few days I will give the answer.

Laurence

Hatem,

Glad to hear your trip went well. Like you, I miss Amsterdam.

My intention is not to be obstinate (the thought!), but to defend the doctrine of ‘facial compliance’ as determined by a ‘banker’. I would go back to my posting of 24 April. My argument is that the banker (i.e. a non-insurance expert) must determine if the insurance document APPEARS to offer the cover required by the credit.

If the credit requires “ICC(A)” and the insurance documents -on its front (as opposed to face)- simply states “ICC(A) excluding rust”, then -on the face (as opposed to front!) of it- less than full cover (ICC(A)) has been arranged. Otherwise, why mention rust (only) if it is a standard ICC(A) ‘exclusion’? Why not mention all the other standard ICC(A) exclusions as well? The only reasonable conclusion -to me- can be that rust is not a standard ICC(A) exclusion and therefore full ICC(A) cover has not been arranged.

Overall, it is not for a banker to know -as a question of fact- what are the standard exclusions of ICC(A) or what non-standard/additional exclusions from ICC(A) particular trades usually employ. To me, it would also be dangerous for a banker to base their decisions on an assumption -which may turn out to be false- that the applicant and beneficiary have contracted on standard industry terms.

Jeremy

Jeremy,

all standard insurance policies carry an exclusion clause covering "inherent vice". My understanding of rust exclusions is that the insurance co. is merely trying to clarify that the nature of the metal has an inherent vice which is a susceptability to rust. Even if the insurance did not have a specific exclusion clause for rust, the insurance co. could still rely on its standard non-specific "inherent vice" clause to exclude rust.

Laurence

Laurence,

I do not challenge the assertion that all standard insurance policies carry an exclusion clause covering "inherent vice". I am also quite prepared to accept that -as a question of fact- the insurance co. is merely trying to clarify that the nature of the metal has an “inherent vice”, which is a susceptibility to rust. Consequently, that the insurance co. could still rely on its standard non-specific "inherent vice" clause to exclude rust.

However, the point is that -as a banker- I do not have any knowledge of what ICC(A) does and does not cover as a matter course, what is meant by ‘inherent vice’ and the particular characteristics of steel that are relevant to insurance. Therefore, I am unable to put the interpretation on matters that a non-banker with a detailed knowledge of both insurance and steel trading could. Consequently, I have to deal with matters ‘on their face’ as they appear to someone with no special knowledge of these matters. The result being as outlined in my previous posting.

Trust this clarifies ‘where I’m coming from’ (which I appreciate is not accepted by others; but in the absence of legal or other eminent support for contrary arguments I’m not prepared to change my position).

Jeremy