SUN HING INSURANCE BROKERS LTD.

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TRANSPORT INDUSTRY OPERATORS: HOW TO HANDLE CARGO CLAIMS

Accident occurrence, notification, survey investigation & cargo insurance An accident has happened e.g. cargo loss, damage, delay, misdirection, misdelivery; general average or salvage; error or omission; customs fines. Transport industry operator should at once notify its liability insurer. Survey investigation should be conducted: o to verify cargo loss, damage & its extent (also in money terms); o to find out possible causes of cargo loss, damage & whether there is: any defence e.g. cargo inherent vice or insufficient packing; any party liable e.g. CY, CFS, warehouse, haulier, shipping company or airline. Shipper & consignee should be encouraged to claim their cargo insurance for quicker & fuller compensation (usually 110% insured value). This would also lessen commercial pressure on transport industry operator. Document & information collection HB/L, HAWB, FCR, CTD, STC (to see if there is any contract with claimant); Subrogation letter (to prove cargo insurers right); OB/L, MAWB, C/P (to consider recourse indemnity claim); Survey report (please see above for its use); Cargo commercial invoice (to verify claim amount); Cargo packing list (to calculate weight or package liability limitation); Stuffing and devanning reports (their value is limited due to their self-serving nature). Liability assessment The first important question is Is there any fault, omission or negligence on the part of transport industry operators servants, agents or subcontractors?. If negative, transport industry operator should reject the claim. The next very crucial issue is Has the claim been time-barred?. o If yes, transport industry operator should reject the claim. o Further dealings with claimant on an already time-barred claim may risk transport industry operator being held as having waived the time-bar defence. o Suit time limit is the period of time within which legal action must be commenced. Once this has expired, the claim is no longer protected by law & court no matter how strong its merits are. o Three months suit time extension is usually granted by transport industry operator upon claimants request if the claim has not yet been time-barred. However, transport industry operator should first obtain suit time extension from shipping company, airline or other subcontractors.

o Transport industry operator usually has 9 months suit time limit in its contracts. However, such is sometimes overruled by international conventions suit time limits e.g. Hague Visby Rules (1 year), Warsaw Convention (2 years). Notice time limit is the period of time within which claim notice must be sent to carrier. o Warsaw Convention has notice time limit of 14 days for cargo damage and 21 days for cargo delay, failure to comply with which will allow carrier to timebar the claim. o However, other Conventions or contractual notice time limits usually could not really time-bar a claim. Law and jurisdiction: many countries courts do not recognise foreign law & court clause. Anyway, it is still better to have it in contracts as this sometimes may help transport industry operator stay or dismiss a court case which is commenced in a wrong forum. Is there weight, package, tonnage or per event liability limitation? e.g. o transport industry operator contract terms: USD2/kg; o Hague Visby Rules: SDR666.67/package or SDR2/kg whichever is higher. SDR1 is about USD1.4; o Warsaw Convention: USD20/kg or HKD135/kg (HK law); o CMR Convention: SDR8.33/kg. Burden of proof: the party which puts up an argument usually has the burden to submit evidence to prove it.

Negotiation, settlement & reimbursement Without prejudice negotiation: transport industry operator should mark Without Prejudice on its correspondence with claimant. In brief, this means the fax or the letter: o is without prejudice to the question as to liability; o should not be disclosed to court by claimant without transport industry operators prior approval. Transport industry operator should make no liability admission or settlement agreement unless with its liability insurers prior approval. Settlement offer should include an expiry date for claimants acceptance e.g. 14 days. Any claim settlement should be on full & final basis and conditional upon claimants agreement to issue a Release/Indemnity letter to transport industry operator. Liability insurer reimburses transport industry operator the agreed settlement amount subject to deductible & limit in the insurance policy. Recovery If there is enough evidence, recourse action should be taken by transport industry operator together with its liability insurer against liable parties, usually subcontractors e.g. CY, CFS, warehouse, haulier, shipping company or airline. If successful, this will improve claims record & reduce loss ratio with liability insurer and hopefully will maintain renewal premium at acceptable level. However, it is often quite difficult to get sufficient evidence to claim a particular party e.g. transport industry operator issued its CFS/CFS HB/L whereas shipping company issued CY/CY OB/L, transport industry operator usually would not have enough evidence to pinpoint which subcontractor caused cargo loss or damage; and thus the indemnity claim has to be dropped after transport industry operator paid the claim to claimant.

Loss prevention Liability insurance should be more for contingency purpose. If transport industry operator has too many claims, such would increase its liability insurance premium (in other words, operations costs or competitiveness would be affected) & damage its image/reputation. The long-term solution should be to prevent loss from occurring. It is not difficult to name a few measures: o Learn lessons from own and others mistakes; o Remove loopholes from existing system; o Provide staff with more and better training; o Use professional & reliable agents & subcontractors. Lastly, having contract terms that reasonably exempt and limit liability is also a very important measure to reduce transport industry operators loss even if accident really happens.
For and on behalf of SUN HING INSURANCE BROKERS LTD.

Richard Chan Associate Director Prof. Dip. (Transport), MCIT, MBA, ACIArb. Email:richardchan@sunhinginsurance.com

Simon Chan Associate Director BA(Hons), ACIS, MBA(Finance) Email:simonchan@sunhinginsurance.com