The decision of the Full Federal Court of Australia in Swashplate Pty Ltd v Liberty Mutual Insurance Company trading as Liberty International Underwriters addresses the issue of when risk attaches pursuant to a transit insurance policy in a situation where there is conflict between the policy wording and a placement slip issued by the broker.
A full copy of the judgment can be accessed here.
On 24 May 2017, Austbrokers, an Australian insurance broker, arranged an insurance facility with Liberty Mutual Insurance Company (Liberty), which set out the terms on which Liberty would issue single transit insurance for helicopters to insureds represented by Austbrokers (Facility).
The duration of the Facility specified in the Master Slip was expressed as covering risks attaching during the period from 23 May 2017 to 22 May 2018 inclusive LST (Local Standard Time). The Master Slip also incorporated the terms of the Institute Cargo Clauses (A) 2009 (ICC(A)), which provide for risk to attach from when the subject-matter was first moved for the purpose of immediate loading, to continue during the ordinary course of transit, and then to terminate on completion of unloading or the point at which transit ceased.
In May 2018 Swashplate Pty Ltd (Swashplate) arranged to transport a recently purchased helicopter from Picayune, Mississippi to the Sunshine Coast Airport in Queensland.
While the helicopter was being packaged and prepared for transit on 18 May 2018, Swashplate requested that Austbrokers arrange insurance for transit of the helicopter. The subsequent Placement Slip provided by Austbrokers to Liberty provided that the period of insurance was from 19 May 2018 to the date of arrival at Sunshine Coast Airport.
As a result of insufficient packing in the shipping container on 18 Mary 2018, the helicopter sustained significant damage during transit and Swashplate made a claim under its policy to recover the costs of repair.
In reliance on the Placement Slip, Liberty rejected Swashplate’s claim on the ground that the commencement of cover took effect on 19 May 2018 Mississippi time, which was after transit of the helicopter commenced and the damage occurred (18 May 2018 Mississippi time). This would mean that a clause that excluded cover for loss or damage caused by insufficient packing of the helicopter, where such packing was carried out prior to attachment of the insurance, applied.
Swashplate’s position was that the insurance cover applied to the whole of the transit period, as well as for an additional five days before loading in accordance with a static cover extension included in the Master Slip. Since the packing of the helicopter took place within this period, Swashplate contended that it was entitled to be indemnified by Liberty.
The trial judge commented that the wording in the policy (in particular, clause 8.1 of ICC(A)) made it difficult to be precise as to when transit cover would commence, and that the specific wording in the Placement Slip overcame this uncertainty. He therefore agreed with Liberty that the policy exclusion applied, given that the helicopter was packed prior to the commencement of the cover on 19 May 2018 in Mississippi.
The Federal Court’s decision
The Court held that the Facility did not contemplate cover that commenced from a nominated date; rather it provided cover for a single transit the duration of which commenced and terminated as provided for in the ICC(A). The Court accepted that it was not necessary for there to be certainty as to the date on which risk would commence and terminate.
The Court considered that the ‘Period of Insurance’ in the Placement Slip merely specified the basis upon which the particular transit is said to be within the insurance period as specified in the Master Slip, and was not determinative of when cover commenced and terminated. The construction contended for by Liberty was considered by the Court to be inconsistent with the express language identifying the voyage to be covered, and was inconsistent with the commercial context of the arrangement.
Accordingly, the Court found that the policy of insurance with Liberty covered the whole transit period, plus the prior five days pursuant to the static cover extension.
The judgment demonstrates the difficulties that can arise in interpreting insurance contracts, particularly where the terms of a contract originate from a variety of different documents, and the importance Courts place on interpreting contracts in light of the commercial purpose behind the policy. Although a Placement Slip will generally show clearly when cover commences and terminates, it should always be read in conjunction with the terms of the policy, and care should be taken when the policy does not provide for certainty as to the date on which risk would commence and terminate (such as transit policies).
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.