High Court rules on interpretation of all-risks cargo policies
A recent High Court case involving Quadra, a commodities trading company who became the victim of a fraudulent scheme for the storage of Ukrainian grain, has provided guidance on the interpretation of all-risks cargo policies.
The case Quadra Commodities SA v XL Insurance Company SE and others  EWHC 431 (Comm), 4 March 2022 confirmed that unless insureds have very strong claims which are likely to succeed on a summary judgment application, insurers are likely to be able to defend section 13A claims as long as they act reasonably.
For the first time, the ruling indicated how the Courts will treat claims for late payment damages under section 13A of the Insurance Act 2015.
Agroinvest, which managed agricultural land, grain trading and silo operations in Ukraine, were able to provide physical deliveries of goods when required, but by late January 2019, the demand became too great and they were unable to provide sufficient goods and a fraud was uncovered. With the exception of some deliveries authorised by the Ukrainian Court after discovery of the fraud, Quadra suffered significant losses.
In February 2019, Quadra notified its lead insurers, XL, that it intended to claim on its policy. Following investigations by insurers, the claim was declined. Quadra claimed that the basis of the insurance was the adventure consisting of the successful storage, transport and delivery of the goods. They sought indemnity for: the market value of the goods; sue and labour expenses; and damages under section 13A of the Insurance Act for late payment by the insurers.
Insurers argued that there was no loss of physical property, and that Quadra's loss was a purely financial loss which was not insured. They specifically denied the cargoes at the centre of the claim existed.
The fraud involved selling the same grain to multiple customers, but the Commercial Court held that Quadra did own the grain and they held an insurable interest in that grain and, therefore, it was covered by the misappropriation extension of its cargo insurance.
The court ruled that Quadra had established that the goods had been physically present in the warehouses. As a result, Quadra was also able to recover sue and labour costs of bringing proceedings in the local courts but its claim for late payment damages under section 13A of the Insurance Act 2015 failed, as the underwriters had paid within a reasonable time.
There was criticism of the speed of the insurers’ investigation before declining the claim and the Judge suggested that had the insurers’ investigation gone on significantly beyond a year that might have been held unreasonable and grounds for an award of damages.
To discuss this further with an expert at W Denis, please contact: Daniel.firstname.lastname@example.org or on 0044 (0)113 2439812
Call us today on 0044 (0) 113 243 9812 or arrange a call back to find out how you could benefit from our intelligence-led insurance policies.