Spanish court revisits Institute Cargo Clauses on inadequate packing

Professional articles
Markus Gómez (Shipping Associate)

Inadequate packaging, packing or storage into containers is one of the most frequent causes of cargo loss or damage. Insurers are well aware of these risks and normally rely on the Institute Cargo Clauses incorporated into insurance policies to narrow down the risks covered.

A recent decision of the court of appeal of Barcelona offers helpful guidance to insurers and assureds on the insufficiency of packing in cargo claims involving independent contractors.

The facts of the case involve a Spanish insurer who rejected cover under a cargo claim brought by the assured, a freight forwarder that had not arranged the packing or preparation of the cargo himself. Under a standard FCL (Full Container Load) house-to-house delivery, it was the shipper who had instructed an independent contractor to correctly pack the goods before their storage inside the container at the shipper´s warehouse.

One of the issues for decision was whether the underwriter could validly reject the cargo claim on the basis of clause 4.3 of the Institute Cargo Clauses (A). This provision excludes loss or damage caused by insufficient or unsuitable packing of the cargo, where such packing or preparation is carried out by the assured or their employees.

The court assessed the rejection of the claim by insurers and focused its attention on the amendments that the Institute Cargo Clauses had experienced from their earlier version of 1982 to that of 2009. Under the current, 2009 clauses, independent contractors cannot be considered “employees” of the assured and the exclusion of cover would not extend to damage caused by inadequate packing performed by independent contractors. In fact, the recent clauses had expressly clarified that the term “employees” shall not include independent contractors. The reasoning is that an assured would be allowed to rely on the cover of a policy where the packing arrangements were performed by a third party and beyond his reasonable control.

In other words, as the palletizing of the cargo had been carried out by third parties during the insured transit, the damage sustained by the goods due to inadequate packing was not excluded under the 2009 Institute Cargo Clauses, hence the claim was recoverable by the assured.   

While this decision is not particularly ground-breaking, its findings are consistent with the aim of the revision of the Institute Cargo Clauses of 2009 carried out by the Lloyd´s Market Association and the Joint Cargo Committee. This interpretation of the 2009 clauses shall be welcomed by the insurance market dealing with Spanish interests, as it provides certainty.



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