Wai Yue Loh Partner and Chief Representative of Beijing Office, Beijing, Partner, Hong Kong and Joint Managing Director, Singapore
Tianjin six months on - Direct insurance issues
Market estimates of the insured losses flowing from the Tianjin Explosion vary significantly, ranging from US$2 billion to US$3.5 billion and there is little consistency as to the basis upon which the estimates are calculated. It is certain, however, that Tianjin will be a very significant loss event.
Many of the initial insurance claims will fall on policies issued locally but the explosion is already reverberating in the London market, which is exposed to claims under a wide range of different policies, from cargo, property and ports and terminals insurance through to product liability and contingent business interruption. Inevitably, the London market will also be exposed to claims in the reinsurance context, on both a facultative and a treaty basis, and those particular issues are explored in further detail below.
The direct insurance issues are complex and range from the correct policy under which a claim should be made (marine cargo or property damage, depending on the storage circumstances and cover in place), to factual questions as whether the insured property has actually been damaged.
In the commentary below, we focus on claims for goods in transit to illustrate the intricate web of issues and potential claims that arise in respect of each loss. It is likely that at least some of these issues will affect many of the claims in the London market.
Has the relevant property actually been destroyed or damaged?
In order to have a recovery an insured will have to prove on the balance of probabilities that its property has been damaged or destroyed. While an insured may reasonably suspect that any of its containers within the 3km exclusion zone around the epicentre of the explosion is irretrievably destroyed, under English law insurers may wish to consider investigating whether all the property in all the relevant containers have been damaged. Equally, while many of the 54,000 vehicles within the exclusion zone are likely to have been completely destroyed, many others may have suffered much less drastic and more repairable damage.
Who has suffered a loss?
Typically in transit policies only the person with risk in the goods at the time of the loss can make a claim on the insurance. Insurers will therefore need to check the INCOTERMS applicable to the sale contract as risk passes at different points depending on those terms.
Does the policy respond?
While fire and explosion are insured perils under all the standard Institute Clauses for cargo insurance, there may well be uncertainty as to whether the particular policy was on risk at the time of the explosion. Under an FOB contract, for example, the buyer will only obtain the insurance interest at the point that the goods are on board the relevant vessel.
Issues of subrogation
Subrogation issues, together with issues of contribution examined below in relation to Tianjin, are also complex.
An insurer of goods in transit, for example, may have subrogated claims in contract against the shipowner or charterer (if the carrier of the goods on a “through-transport” basis); a claim in contract or bailment against the storage yard; in tort against the manufacturers of the goods that caused the fire; the owners of the goods that started the fire; the warehouse where the fire started; or even the Port Authority. Each of those defendants will likely have their own liability insurers, leading to further complexity and further impact on the London market.
In the end, it is likely that only one or two parties are likely to be held to be to ‘blame’ for the explosion and the crucial point for subrogated claims will be to maximise the return to insurers while avoiding directing aim at an effectively insolvent party that is extremely unlikely to have insurance cover in place to deal with a loss in the $billions.
Double insurance and contribution
Under English law, where more than one policy provides cover to the same insured for the same subject matter, the insured can recover the full amount of its loss from whichever insurer it chooses. The insurer that pays will be entitled to a contribution from the other insurers.
Whether two policies actually cover the same subject matter will be a mixed question of law and fact to be examined in detail in each case. As many readers will know, several types of clauses designed to avoid contribution claims (including ‘notification of alternative policy’ clauses, ‘rateable proportion’ clauses, ‘escape’ clauses and ‘excess’ clauses) are routinely included in policies. However, the interaction between the relevant policies where they each include such a clause is complicated and requires detailed analysis in each case.
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