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  • QA 215
    Question:
    Damage during loading - who should initiate insurance action?
    Background:
    We have purchased coffee basis FOB origin port that we have resold, also basis FOB port of origin. The container fell during loading on board ship, causing severe damage to the container itself and the coffee that now no longer is in exportable condition. The shipper immediately replaced the goods but, has asked us to lodge an insurance claim. Our own client however refuses to become involved in this matter arguing that he or his underwriters are not involved and are not required to initiate any process. Who then should initiate insurance action in this?
    Asked by:
    Importer/trader - Switzerland
    Answer:

    This question is important for both shippers and receivers (sellers and buyers). However…

    It is not the objective of The Coffee Guide (Project) to offer definitive views on extremely technical issues as raised by this question. Discussion around this type of dispute requires both full knowledge of all the facts and a clear understanding of how to interpret them. Where disagreements persist between the parties then the solution would be to submit the matter to technical arbitration as per the conditions of the contract.

    It should be understood therefore that the following simply represents an interpretation of informal and personal opinions obtained from persons with knowledge of the subject, based on the limited facts available that may or may not be incomplete.

    Background…

    1. The exporter, his original buyer and the second buyer all contracted FOB as per ECC conditions. Under ECC the shipper's responsibility only ends when the goods cross the ship's rail. *

    2. However, ECC also states that the obligation to keep the goods insured passes to the buyer when the coffee leaves the ultimate warehouse or place of storage at the port of shipment. This is different from straight FOB terms.

    3. In modern container shipping, containers to be shipped are delivered to a terminal. Onward handling is then arranged by the terminal operators - shippers may not deliver directly to ship's side.

    4. Different rules apply to different situations whereas local legislation may also play a role. However, it is our understanding that the following is a fair representation of current practice:

    • On arrival at the container terminal the container is handed over to the carrier or his agent (the terminal operator) who thereby accepts responsibility from this point onwards.

    Alternatively

    • The terminal operator receives the container on the shipper's behalf. In this case carrier's responsibility only commences when the straddle crane lifts the container and removes it from the stack for placing onto ship.

    The actual event…

    5. It is stated that the container fell during loading but it is not clear at which stage or under whose responsibility this occurred. However, the facts as stated indicate that the shipper asked the buyer to initiate a claim for the damaged shipment, under the buyer's insurance as per ECC conditions. This suggests the carrier might have declined responsibility, possibly because in their view the accident occurred before the container became its responsibility and that any damage should therefore be claimed under the shipper's own insurance …

    6. Based on the facts as stated it would appear that neither the original buyer nor the subsequent buyer suffered direct financial loss from the event as the shipper replaced the goods and effected another shipment. And, without more details of when exactly the damage occurred and under whose responsibility the goods were at the time, it is likely that the subsequent buyer considers this to be a matter between the shipper, the carrier and their respective insurers.

    7. Nevertheless, it is suggested that this does not change the ECC stipulation that the buyer's insurance must extend to the point as mentioned under item 2. Should the buyer have failed to arrange accordingly then he might be considered liable for any consequences towards his seller. In this respect we would point out that in our view it makes no difference whether the goods pass through several hands - under ECC each seller has this insurance right against the next buyer.

    Finally, clearly there is every chance of disagreement when things go wrong as in this case - not everyone may interpret contract terminology in the same way. To avoid becoming caught up in issues as the present, origin FOB sellers should probably consider extending their own insurance to cover them until the goods are on board ship. Double coverage perhaps but, should assist towards avoiding this kind of dispute.

    However, it would certainly be preferable to have better general understanding of individual responsibilities, also as regards insurance, during each stage of modern container transport. The differences between traditional and container shipping practices are increasing all the time.

    *  ECC: European Contract for Coffee, issued by the European Coffee Federation - ECF. Visit www.ecf-coffee.org. or see Chapter 4 of the Coffee Guide.

    Posted 19 March 2009

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