Cargo Communicable Disease Clause offers flexibility  

Back to blogs

15 June 2020 | 5-minute read 

Lockdown has not halted cooperative work between the 35 Lloyd’s and company market underwriters that form the Joint Cargo Committee (JCC) and London brokers through LIIBA. Their recent efforts include preparation of new Communicable Disease clauses, which permit much greater flexibility of cover.

World trade patterns have seen unprecedented change in recent months. Port accumulations, vessel delays, border-crossing closures, and national self-isolation have all affected routines, as has the shocking and unexpected decline global oil prices. For cargo insurers, port, vessel, and warehouse accumulations must be a genuine concern.

While delay itself is not an insured peril under standard London clauses, underwriters have deployed accumulation clauses since the EU ‘butter mountain’ issue of the 1970s. They are included in most general cargo policies, and may now be needed, since underwriters potentially face increased and unforeseen accumulation exposures. The major risk is the widened coverage of insured expenses such as forwarding, shipping, and extra expenses, which sometimes are covered under Trade Disruption Insurance (TDI) extensions.

Standard Institute Cargo Clauses excludes delay under clause 4.5, but includes duration, termination of transit, and change of voyage clauses, which grant cargo cover when destinations change and underwriters have been advised. A change of destination may also add to the costs incurred, which may add to aggregate exposure.

The clause requires all parties to consider the nature and extent of pandemic coverage granted under new and renewing policies. Underwriters have two options they may exercise based on their risk appetite and ratings levels: use a full exclusion, or an alternative with a limited buyback. The latter allows underwriters to grant bespoke coverage under each policy, perhaps to include a measure of expenses coverage, in line specific policy wordings.

Each underwriter and insured has choices which should be discussed with brokers at renewal. It will be particularly important when frozen and chilled extension clauses are used. The common Duty of Assureds clause will mean underwriters will expect customers to withhold or refuse shipments if they know the goods are unlikely to arrive at their intended destination.

The JCC’s new model Communicable Disease clauses offer flexibility for customers, and a route to price a newly recognised exposure adequately. They are available on the JCC Webpage of the LMA website. If you have any questions about them, please feel free to contact me.

Phil Norwood
Senior Executive, Technical Underwriting

View Profile