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Marine Insurance Case study

Policy no. Consignor:

21/2009/320 dated: 2.12.2003 specific marine policy M/S Manav International, New Delhi

Consignment: Readymade Garments in container meant for export in 304 cartons Packing: Voyage: Mode: Container From Delhi to Panama By Road/Sea

Sum Insured: Rs.67,93,000 on C&I + 10% (Rs.60,47,817 + 10%) Coverage: ICC A with War & SRCC

Bill of Lading: Delhi/0393 dated 8.12.2003 Invoice nos.: 03 & 04/2003 dated 4.11.2003 Status of container: Empty, noticed at consignees warehouse. Claim lodged: Invoice value US $ 134250 + 13425 + SF US$ 381 + Freight US$ 1985 = Total US$ 150041 Course of Action suggested: Verifications with various agencies involved in transit of goods from - consignor, carriers, shipping line, Custom Authority, local suppliers, fabricators, and consignee Document Verification:Export Sales for yr. ending 31.3.2003: Rs. 4,24,41,593; GP =Rs. 45,22,854, (10.6%) and NP= Rs.16,09,936 (3.79%) Export Sales for yr. ending 31.3.2004: Rs.1,40,22,966 including the consignment; GP= Rs.42,88,263 (30.58%) and NP= Rs. 19,79,320 (14.11%) Local sales if any: Nil

Valuation of Cargo:

The policy is issued as per cover note = Invoice Value + 10% (USD 134250 + 13425 = USD 147675). Taking the conversion rate at Rs. 46 the Sum Insured was worked out at Rs. 67,93,000.

Documents for export: Credit sales without letter of credit. Original B/L, Invoice, Packing list, original shipping bills along with exchange control copy and export promotion copy were submitted to the Bank for the purpose of clearance of GR/SDF form. Transshipments: The container carrying the garments was loaded at port of Nhava Sheva, India and was transshipped at port of Singapore and again transshipped at port of Hongkong and finally the container was discharged from the vessel APL Tourmaline at the port of Manzanillo International Terminal (MIT) Republic of Panama on 21.01.04 Previous similar claims: one similar claim by the same client in yr.2003 Claim Settling agent: M/S W.K Webster(Overseas) Ltd. Appointed to investigate into nature of claim and movement of cargo Indian Investigator: M/S J C & Co. Pvt. Ltd., New Delhi to investigate into as the consignor and consignee were closely related, to investigate into right from sampling, approval by importer, purchases of fabric, fabrication, finishing, packing and voyage details upto receipt of container at Consignees warehouse Brief facts of the case: 1. 1. The representative of the exporter visited the importer with samples and got the necessary order for export, but no record/evidence of such person having visited the importer to seek the order was produced 1.2. No samples approval by the importer or their photos were retained by the exporter nor any documentary evidence to have the samplegarments fabricated/manufactured was produced.

2. The purchase order dt.20.9.2003 from the importer had following deficiencies: (i) No specifications, whatsoever, of the garments ordered have been given; and from the invoice and packing list, the goods have not been exported as per the order (ii) As per the terms or the order the consignor is responsible till the goods are received by the consignee in sound condition, therefore the consignee is not responsible for payment in this case. However the balance sheet of the consignor showed and outstanding amount due from the consignee only Rs. 49 lacs approx. against a consignment of Rs.60 lacs approx. 3.1. Purchases of fabric for manufacture of garment were arranged by one Mr. Mohan Lal under the name Ganesh Trading Co, Katra Neel Chandni Chowk, Delhi-06 and other firms with different addresses of which no trace was found out and firms seemed to be nonexistent/bogus. 3.2 Surprisingly, even the purchases of the fabric started and delivered to the fabricators before the order of importer. 4.1 The issuance of fabric to fabricators started before the date of purchase order of the importer dated 20.9.03, without knowing the kind of garments to be fabricated 4.2 A good number of garments were received after the date of invoice dt.14.11.2003 but incorporated in the invoice and packing list dt.14.11.03 4.2 In certain cases there was no sign/trace of fabricator who raised their bills against fabrication of the reported garments 5. Corrugated cartons 655 were purchased before the import order for no reason explained 6. Details for garments not suitable for export sent for refinishing and repacking could not be substantiated by documentary evidence Claim by Consignee: 1.1 On arrival of the container, the Importer Baby International found the custom seal number changed. Letter from the port to the transporter

observed the numbers of both the seals of container were not visible. On contacting the shipping lines M/s Mitsui OSK Lines Ltd and insurance Surveyor Mc Larens Toplis, Panama the container was opened in the warehouse of consignee in the presence of representative of OSK Lines and the container was found totally empty. 1.2 The consignee handed over the orginal B/L dated 8/12/03 issued by M/s ARK Royale Agencies Pvt. Ltd. to their agent M/s Servicio International De Carga to obtain the copy of master B/L dt 23.12.03 of M/s Mitsui OSK Lines Ltd. dully endorsed in favour of M/s Baby International. At this point of time the consignee did not bring it to the notice of the Servicio International about the changes in the seal number except a monetary claim letter dt. 23.3.04 was later lodged on them for loss of entire consignment. 1.3 The delivery of the container were taken on 27.01.2004 through a driver of a trailer of M/S Intertrans by handing over the endorsed master bill of lading dt. 23.12.03 without any remarks of erasing of seal numbers. Normally delivery in case of illegible seal number should not have been taken without written communication to M/s Servicio International and M/s Mitsui OSK Lines Ltd. An open assessment delivery should be taken to find out the condition of the cargo inside the container. If any such open delivery assessment is refused then only the delivery should be taken under protest. More so when a similar empty container was received by Consignees group M/s M & M Fashions barely a few days ago, the consignee cannot afford to adopt such casual approach towards tampering with the seal numbers of container and engaging the same carrier M/s Intertrans to take delivery of container independently. 1.4 Further the wt 7600 kg of goods and tare wt 1600 kg of the container should have came to notice of the driver of Intertrans easily to judge the emptiness of the container when the seal numbers were illegible. Consignee instructed the driver to take delivery of the container with a certificate from MIT mentioning about the invisibility of seal numbers. Invisibility of seal numbers did not ascertain if the seals were original or same. The conduct of the consignee shows that they were not worried about the cargo but to create evidence about the abnormality of seal numbers only at the time of taking delivery. The consignee should have

insisted for open assessment delivery. The insured should have acted as if uninsured. Right of Recovery: The claimant has to establish that the goods have been lost/damaged whilst in the custody of any of the parties enroute, to protect the recovery rights. The consignee having noted invisibility of seal numbers should have gone for open assessment delivery to note the condition of the cargo. Nothing as such has been established or even attempted to be established. No monetary claim was lodged on M/s Mitsui OSK Lines Ltd N Delhi, India. Insurable Interest: 1.1 The purpose of insurance is to indemnify the insured for the financial losses suffered by him due to the operation of insured perils. The insured can suffer loss only when he has financial interest in the subject matter of insurance. This financial interest is called insurable interest as defined in the Insurance Act. Also refer ICC clause 11.1. 1.2 As per the sale contract between the consignor and the consigneethe consignor will be responsible till the consignee received the consignment in sound condition at their warehouse. The consignment will be shipped at the risk and responsibility of the Consignor insured. 1.3 If insured has no interest at the time of the loss, he cannot acquire it later after he is aware of the loss. Till the time of loss the consignee had not made payment to the consignor. However, later the consignor has confirmed that they have received the money of sale after some time of the loss. The policy was assigned in favour of the consignee. Admissibility of Claim:1.1 The invoices and packing lists were not found authentic. Lack of Utmost Good faith was observed by the surveyor. 1.2 The insured did not act as if uninsured. The insured did not protect the recovery rights. 1.3 As per the BL of dt 23.12.03 of M/s Mitsui OSK Lines Ltd. Mentions place of delivery as Colon Door, which seems to be a case of door delivery. But the consignee preferred to take delivery at MIT port and made their own transportation arrangements from Port to their warehouse without any consignment note issued by the transporter, Intertrans. It shows that the contract of carriage entered into with the shipping lines was terminated by the Consignee and the consignee

carried the container from MIT port their warehouse at their own risk and responsibility. 1.4 The contract of carriage was terminated at MIT port and the Consignee was duty bound to take open assessment delivery or delivery under protest after survey by insurance surveyor since there was apparent doubt about loss/damage to the cargo. 1.5 The claim of the consignee is not admissible for want of Insurable interest.


What kind of policy was issued in this case? What was the valuation of the policy? Whether freight was covered? The rate of profit increased despite reduction in sale? Is the sale to single importer-buyer ! Does it Show some close link between seller and buyer ? What is insurable interest? Whether the insurable interest in this case is transferred with the assignment of the policy in favour of consignee? What is recovery right? Why recovery rights are not protected in this case? Should the claims have been lodged by the Consignor on the insurer instead of Consignee. What went wrong, where the open assessment survey should have been conducted to remove the doubts in this case?