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Published 2 May 2018
The Commercial Court has recently held in Engelhart CTP (US) LLC v Lloyd’s Syndicate 1221 that unless clear and specific wording is used, an all risks marine cargo insurance policy does not cover a non-physical loss in the event that the intended cargo under the policy was never loaded on board the vessel.
The policy operated on an open cover basis in relation to a range of commodities, including certain metals. The claimant claimed under the policy when containers were found not to contain the copper ingots it had traded, only slag of nominal value. It was an agreed fact that no copper was ever shipped and that the claimant in good faith had paid for and taken up fraudulent bills of lading and other shipping documents.
Having found that the containers never contained copper ingots, the claimant contended that the policy was an all risks policy in the broadest sense, and demanded payment in respect of the lost cargo. Policy coverage was rejected on the grounds that the policy terms do not cover non-physical or "paper" losses.
The claimant relied on the following arguments:
a) That the container clause, incorporated into the policy, provided cover for shortages, within which total loss should be contemplated. In that regard, any loss arising from the fact that no cargo was ever loaded should be regarded as a loss and consequently be indemnifiable.
b) The second argument was based on a fraudulent documents clause agreed in the wording. The claimant tried to argue that if the loss occurred as a result of accepting fraudulent documents, then it must follow that, in the absence of any goods, the assured should be entitled to bring a claim under the policy.
The Commercial Court was not persuaded that a physical loss had occurred, the goods simply being non-existent to begin with. In that regard, it was clear that there was never any cargo to be physically lost because no cargo, of the type said to be covered, was ever loaded.
The decision emphasises that an all risks marine cargo policy is generally construed as covering losses flowing from physical loss or damage to goods only. Had the parties intended cover to extend to non-physical losses, then clear words ought to have been agreed.
Engelhart CTP (US) LLC v Lloyd’s Syndicate 1221 for the 2014 Year of Account and others  EWHC 900 (Comm)
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