Air Cargo Insurance

Malcolm Clarke, George Leloudas

• Publisher: Informa Law from Routledge
• Year: 2016
• Print ISBN: 9781138793231
• eBook ISBN: 9781317645078
• Topic: Law
• Subtopic: Financial Law
• Index: Law

Approximately 40 per cent of value of international trade comes from goods carried by air, and the consequences of goods being damaged, destroyed or delayed can be serious, substantial, and perhaps unforeseen. This exciting new book is the only one on the market that deals exclusively with air cargo insurance, and will therefore, be a vital addition to the collection of any practitioner, professional or academic working in the field.

Air Cargo Insurance analyses the model policies and standard terms and conditions on the London markets. The authors also provide readers with an invaluable perspective on cases in other jurisdictions, and the book discusses freight forwarders' relations with airlines and addresses the possibility of recovery from third parties.

This book, written by two of the leading experts in the field, provides invaluable guidance to practitioners, arbitrators and cargo-claims professionals. It will help to ensure that air cargo insurance contracts are better drafted and enforceable, as well as assisting in cases of disputed claims. Academics and postgraduate students specialising in the areas of in air and insurance law will also find this book extremely useful.

Chapter 1

General principles of insurance

1.1 Contract formation

1.1.1 General rules

The rules of law governing contracts of cargo insurance are those that govern the formation of most other commercial contracts. Accounting for about 30 per cent of world trade in terms of value, “cargo carried by air forms only one element in the complex logistical chain that accompanies the sale and shipment of goods generally”.¹ That is true, firstly, of contract formation,² which occurs when the offer of one party, typically the applicant for insurance, is accepted by the other party, the insurer. Commonly, however, the applicant obtains a prior quotation from the insurer which, in the language of contract law, is not an offer but an “invitation to treat”. If then the applicant “accepts” the quotation by completing the insurer’s application form on that basis, the form is the offer to be accepted (or not) by the insurer.

If indeed the insurer is not willing to accept that offer, that may be the end of the matter. Alternatively the insurer may respond with a counteroffer,³ which may then be accepted by the applicant. However, sometimes the applicant may meet the counteroffer with a further offer for acceptance (or rejection) by the insurer, and this process continues until the offer of one or other is accepted or rejected (the end of the matter).

This process, in the format of offer and acceptance, although common and useful,⁴ is not essential or exclusive for testing whether a contract has been agreed.⁵ Sometimes a contract, in particular a non-standard contract, is the product of negotiations. However, the traditional offer and acceptance analysis remains the safest approach unless there is clear evidence that a different outcome was intended.⁶

1.1.2 Terms

In any case, for an enforceable contract the terms must indicate:

1. (i) the identity of the parties;
2. (ii) the type of cover intended;
3. (iii) the limits of the cover;
4. (iv) the period of the cover;
5. (v) the events covered;⁷
6. (vi) particularly for air cargo insurance, the limits – whether the aggregate limit or the limit per claim.

Other terms, although important and essential to the business efficacy of the insurance, may be implied.⁸

1.1.3 Particular forms

On to this skeleton of essential terms parties may well construct a more detailed statement of their intention. Sometimes they negotiate a construct that is entirely specific to the case, but often parties draw on appropriate standard market terms. In particular, in cases of air cargo insurance they may turn to the work of the Aviation Insurance Clauses Group (AICG) for non-binding standard wordings, clauses and variants for use in aviation insurance policies.⁹

The AICG arose in 2005 when the European Commission announced that:

Following an investigation by the Commission, leading European aviation insurers have undertaken to reform their practices as regards the operation of aviation insurance in order to promote more competition and transparency. The reforms foresee inter alia greater transparency in key industry committees based in London, including one that establishes standard wordings for aviation insurance policies and clauses.

As a result, the AICG was established later in 2005 by the Lloyd’s Market Association and the International Underwriting Association of London.

Contracts with AICG clauses are concluded in London at Lloyd’s, where some degree of negotiation usually precedes final agreement, and which has particular features.¹⁰ Today, it is possible to conclude contracts electronically by placing risks in the market by data interchange using ACORD standards.¹¹ Such innovations, however, do not alter the basic legal analysis of the conduct of business at Lloyd’s.

1.1.4 Applications

Many contracts of insurance are concluded simply by the insurer’s acceptance of an application for insurance submitted by the person seeking insurance, on a form drafted and made available to applicants by the insurer. Where this is the case, the statements made in the form, statements about the applicant’s circumstances and thus about the risk to be insured, are important. They are usually representations of fact, which, if untrue, entitle the insurer to rescind the resulting contract of insurance. Further, if there is a statement that the form describes as a “basis clause”, what the applicant states in the application might become a term of the contract itself; and again if untrue or unfulfilled, entitle the insurer to refuse a claim.¹²

Unless the parties know what they are committing themselves to, the courts are slow to infer intention to contract and hence slow to infer that an alleged offer is indeed an offer in law, unless the offer (and hence the contract) is certain in content. Uncertainty arises in two ways: in what the parties have said – ambiguity (below, (a)), and in what the parties have not said – incompleteness (below, (b)). However, gaps can sometimes be filled with implied terms or settled indirectly (below (c)).

1.1.4 (a) Ambiguity

Courts cannot give effect to intention that is unclear; and they will not guess what the parties might (or should) have intended;¹³ however some courts take the more flexible view that it is sufficient that the reasonable businessman would have understood the main terms of the transaction.¹⁴ In any event, courts will not rewrite contracts.¹⁵

1.1.4 (b) Incompleteness and implied terms

In principle, an incomplete application cannot be an offer, if what is missing is an essential term,¹⁶ of the kind listed above (1.1.2) such as the amount of insurance.¹⁷However, some terms essential to the business efficacy of the insurance, such as the duration of cover, are likely to be implied. Other terms, such as the geographical limits of cover, may or may not be implied according to the case. That is true of war risks.¹⁸ Premium rates will be implied where the particular risk is a standard risk for which there is an ascertainable market rate,¹⁹ as will terms about the mode of payment.²⁰

Implied terms are sometimes categorised according to their source. For instance (a) they may be implied from previous dealings between the particular parties;²¹ or (b) they may be implied from the custom of the insurance industry, provided that they are certain (ascertainable),²² well established in the industry and contrary neither to law nor to the express terms of the contract.²³ Finally (c) it is assumed that people know that insurers have standard terms,²⁴ so that the application of the person seeking insurance is presumed to be on the basis of the insurer’s standard terms (if any) for the kind of risk proposed,²⁵ provided that sufficient awareness of the terms can also be presumed.²⁶ However, the law requires extra and special notice of unusual and onerous terms, especially restrictions on cover, if they are to be part of the contract.²⁷

1.1.4 (c) Terms settled indirectly

Courts give effect to terms that have not been settled by the parties themselves and stated in the contract but incorporated in the contract by reference,²⁸ such as the AICG clauses mentioned above. The reference may be not only to the market but to a nominated person to settle the matter.²⁹

In this connection, the practice in the London subscription market should be noted, whereby on the basis of a leading underwriter agreement, a risk is first and mainly assessed by a leading underwriter,³⁰ and other subscribers to the risk (followers) authorise the leader to settle outstanding issues (including terms) concerning the risk.

1.1.5 Finality

If it is to be accepted and become the basis of an enforceable agreement, any offer to contract must indicate a real willingness to be bound on the part of the offeror: a matter of construction of the offer, bearing in mind the context in which it is made. There is a presumption that a document, such as an insurance application, which looks like a firm contract offer is indeed intended as such, which is rebuttable, however, where there is reason to infer otherwise. For example, the circumstances in which the application is made may be such that it is contrary to commercial...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Prologue
• Table of Cases
• Table of Legislation, Directives and Conventions
• Table of Abbreviations and Acronyms
• Chapter 1 General principles of insurance
• Chapter 2 Air cargo insurance: General principles
• Chapter 3 Insurance claims by cargo-interests
• Chapter 4 Liability insurance
• Chapter 5 Air cargo liability insurance claims
• Chapter 6 Air cargo property claims
• Conclusion
• Index