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High Court Blows Hole in All Risks Marine Insurance Cover

shipsThose involved in the shipping industry should swiftly review their insurance policies in the light of a High Court ruling that a commodities company that fell victim to a multi-million-pound cargo fraud was lawfully refused cover.

The company had paid in full for 2,000 copper ingots that were to be shipped in more than 100 containers from New York to Hong Kong. Bills of lading, packing lists and quality certificates all appeared to be in order. On arrival, however, the containers were opened and found to be filled with worthless slag.

The company claimed on its all risks insurance policy and launched proceedings after a number of Lloyd’s of London syndicates refused cover. It was argued that, on its true construction, the broadly worded policy obliged the insurers to indemnify the company after it was defrauded into taking up documents of title for non-existent goods.

In rejecting those arguments, however, the Court noted that the risks covered by the policy all involved physical loss or damage to goods. On the agreed facts, the copper ingots had never actually existed and there was thus no physical cargo that could be either lost or damaged. The use of the word ‘physical’ in the policy could not be simply brushed aside and the policy did not encompass economic loss arising from the company’s acceptance of fraudulent documents in respect of an illusory cargo.

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