Marine Insurance Case: Open Cargo Policy

JDA Co. Ltd and ors v AIG Insurance New Zealand Limited [2022] NZCA 532

The New Zealand Court of Appeal has considered a case which involved a marine cargo open policy. Under the policy, the insurers agree in advance to cover qualifying cargo declared periodically by the owner.

The policy was issued to Automotive Technologies Limited (ATL), a logistic company involving services the company provided to exporters of second-hand cars from Japan. The coverage was made available to the exporters, who could take the insurance for local and international transits for exported vehicles. The scheme was called AIMS.

The cover was available on either Institute Cargo Clauses (A) or (B) terms. At the start of each month, the details of all cars to be insured, which had been received in pre-shipment holding yards during the preceding month, had to be declared to the insurers and premiums paid accordingly. The exporter would choose the basis of cover terms A or B. The insurers were bound to accept the declaration, with risk attaching retrospectively from the date each car had been purchased.

“The pre-shipment holding yards” were defined as the place or premises at which an insured car is temporarily situated following an acquisition by the assured, but before the commencement of transit on the port of loading for export.

In August and September 2018, large numbers of cars held in the storage yards were damaged in typhoons. This led to a significant increase in the number of cars insured in September, including from exporters who would not usually choose to purchase the insurance cover or would typically insure fewer cars.

A large number of claims were declined. This led to proceedings being issued by the assured exporters.

The High Court judge of New Zealand declined the exporters’ claims. The exporters appealed.

The Court of Appeal upheld the decision of the High Court. The court held that the exporters had to demonstrate that they had intended to insure the cars under the AIMS scheme prior to the attachment of risk. Often their election to insure post-dated the attachment of risk, sometimes by significant periods.

Even where an intention to insure could be shown, it was a mandatory policy requirement that all insured cars be declared in the month after entry into a pre-shipment yard. This requirement was necessary to prevent customers from applying for insurance after losses had occurred. However, often the insurers were not provided with information regarding the extent of the risk to which they were exposed. As a result, the exporters kept their options open or waited for a sale on CIF terms before declaring and paying the premiums. A sale on CIF (cost, insurance and freight) terms means the exporter is contractually obliged to arrange transit insurance. As a result, exporters thought they could delay the insurer’s choice and payment timing until shipping was imminent.

However, if the cars were not declared in the declaration for the month they entered a pre-shipment yard, the insurers would not have an accurate measure of their exposure.

The requirement to declare was a promissory warranty under section 34 of the Marine Insurance Act 1908. Failure to comply with the terms of a promissory warranty discharges the insurers from liability.

The court found that there was a breach of warranty where the car was not included in the declaration for the month in which it entered the pre-shipment holding yard. More generally, the plaintiffs were not entitled to cover for cars which entered a pre-shipment holding yard in or before July 2018 but were only declared in September 2018 or for cars which entered a yard in or before August 2018 but were only declared in October 2018.

The rule is that where a declaration under a marine open policy does not comply with the terms of the policy, no contract is formed.

For this reason, the court favoured the insurers and against the exporters.