Industry News & Tips

Cargo liability caused by your cargo, not to your cargo.

April 28, 2007

Gene Horton

There’s a new emerging liability from what is normally a very low exposure. That is the liability caused by your cargo to other cargo in the same shipment. Since cargo insurance is "property" insurance, liability coverage is not part of the contract. Let me give you an example of two situations where your cargo damages other shipper’s cargo.  First, your cargo breaks loose in heavy seas and damages other shipper’s cargo.  While I can’t say you wouldn’t be named, I’m comfortable in saying that in this situation the liability would belong to the ship owner and “those acting on their behalf”. In this case it would probably be the stevedores since it was their job to load and secure the cargo. Both you and the shipper with the damaged cargo would look to their respective cargo insurers for coverage. Bear in mind, there are limitations to the liability of ship-owners. These limitations will be shown on the back of your bill of lading.  

Now let’s look at a totally different situation. You are a battery manufacturer and regularly get shipments of battery solutions used for the chemical reaction to make electricity in your batteries. These shipments are shipped in drums that are then loaded in containers. Your shipping documents and bill of ladings all clearly state your cargo is corrosive, hazardous and even toxic. During one of your shipments, one of the drums in the shipping container leaks the acids during the whole voyage and damages other shipper’s cargo.  In this situation the steamship company would deny any liability. This would now split into two more scenarios. One, the steamship company would pay for the damages and then “subrogate” against you. Or more likely they would deny any liability and refer the owners of the damaged cargo to you. 

Now you as a boat owner shipping his yacht as cargo are confronted with a very similar situation. Let’s say your boat was run on its own bottom to the ship where it was loaded on board with no incidents. Unknown to anyone someone left both the electrical power on and an appliance or motor also on. The motor malfunctions and overloads and causes and electrical fire. Then this fire not only damages your yacht but other yachts and cargo on the same ship. 

Where would each of you look for coverage? Again, there are two possibilities. For the battery manufacturer he will have to look to his business insurance. His coverage will have to be tailored to his business since this type of loss is normally excluded in a standard “commercial general liability” policy.  He would probably find coverage under his environmental third party liability policy. This is a long and deep subject that needs to be addressed on an individual basis.  

For the yacht owner he could depending on the underwriter find some coverage in his personal liability policy. That’s a long shot. A more likely solution would be in his umbrella policy if it has a “drop down” provision. This provides coverage for exposures that you don’t usually have. The best solution would be to have a yacht policy in force during the shipping voyage. The underwriters usually suspend the hull portion of the policy leaving the liability in effect. This is the correct way to set up coverage. Unfortunately most yacht underwriters won’t or are reluctant to do this.  

As one of the oldest yacht cargo specialists we have some unique underwriters to work with and we offer a one year wrap around policy that covers the yacht from the factory, on board the ship and the first year of coverage. After the first year we have many options for renewal. I hope this article is interesting and helpful to those of you who will be shipping yachts. Please feel free to contact me by telephone or e-mail if you would like to discuss this further. Thanks for your support,

Gene Horton