Summary of Decision
Cargo insurance can be made up of a floating policy or a policy that is valid for a single voyage. A floating policy is a contract whereby the insurer undertakes to indemnify the insured, to the extent agreed, against damage occurring to the cargo due to perils of the sea during a specific period. A floating policy does not give details of the insured cargo, the insurance premium, the voyage or the carrying vessel since these matters are unknown to the parties at the time of making the policy. Rather, they are determined as the shipments are sent out. The insurer is then informed of the deadline specified in the policy, at which point coverage is triggered automatically without the need to conclude an insurance policy in respect of the cargo. Accordingly, under a floating policy (or open policy / open cover policy), coverage is not valid unless the insurer has been informed of the goods being shipped to be covered by the policy and the sum insured prior to any occurrence of the insured cargos peril.
Facts
The facts at this particular case are that the Plaintiff filed Civil & Commercial Action No. 299-2001 in the Dubai Court of First Instance against five Defendants, seeking a decision that they jointly and severally pay the sum of US$145,350 (AED 536,350) plus 12% interest per annum.
Upon the request of the First Defendant, the Plaintiff issued a letter of credit in the amount of US$ 145,350 for the purchase of textiles from Second Defendant (the seller and shipper of the goods). On the basis of an agreement between Second and Fourth Defendants, the First Defendant issued a bill of lading for transport of the goods from Jakarta to Dubai by a vessel owned by Third Defendant. The Insurer (the Fifth Defendant) issued an insurance policy for the goods. Accordingly, the Plaintiff paid the Second Defendant with a bill of exchange for US$145,350. However, the cargo did not arrive at the destination port (Dubai) and was not delivered to the Plaintiff under the Bill of Lading.
On 21st June 2003 the Court dismissed the action against First, Second and Third Defendants and ordered Fourth and Fifth Defendants (the Vessel Charterer and the Insurer) to pay, proportionately to the Plaintiff, the amount of the claim plus 9% interest per annum from 15th April 2001 until paid. All other claims were dismissed.
The Insurer/ Fifth Defendant filed and Appeal against the Plaintiff and the other Defendants. The Plaintiff also appealed the first instance judgment. After joining the two appeals in order to be decided together, the Court decided on 27th March 2007 as follows: 1) to admit, in form, the appeal brought by the Insurer/ Fifth Defendant against the Plaintiff; 2) to admit, in form, the appeal filed by the Plaintiff; and 3) As to the merits of the appeals, to the extent admitted in form, to dismiss the appeals and uphold the lower Court's decision.
Subsequently, the Fifth Defendant and the Plaintiff appealed to the court of cassation.
The Court of Cassation accepted the Fifth Defendant's appeal. The Court of Cassation held (in accordance with Articles 371 & 373 of the Commercial Maritime Code), that contracts of marine insurance must be evidenced in writing by an instrument called an insurance policy, which in turn, may only be amended in writing.
Cargo insurance, within the meaning of Article 414 of said Law, was held to be affected by an insurance policy that is either valid for a single voyage, or by a floating policy. The Court also held that in line with Article 261 of the Commercial Maritime Code, the carrier may not issue a bill of lading before the goods have been loaded on board the vessel and the insured could only conclude a contract of insurance with the insurer for ocean transportation of the cargo under a bill of lading. This means that the contract of insurance is linked to the bill of lading (which is no substitute for actual shipment of the goods on board the vessel).
The Fifth Defendant (the Insurer) pleaded in all its memoranda before the Courts of First and Second Instance that it was not required to provide indemnity under the open policy per se without cover having been provided in connection with the shipment, but on receipt of a report on the goods being shipped and the premium. The Insurer further pleaded that Plaintiff was the victim of a fraud because the goods were never shipped. The Court held that both of these pleas were substantial pleas which would, if accepted, change the outcome of the case. By failing to examine those pleas, the lower Court erred and its decision ought to be reversed. The Court further held that according to Articles 257 and 266 of the Commercial Maritime Code, a letter of credit is a means of paying for international sales transactions under which a bank undertakes to pay the beneficiary on behalf of its customer who opened the letter of credit. If the bank pays the beneficiary on the basis of documents which appear on their face to comply with the terms of the letter of credit, then the customer who opened the letter of credit would be obliged to cover the bank through reimbursement of payments made and expenses incurred thereby in meeting its obligations under the letter of credit.
Conclusion
Articles 371 & 373 of the Commercial Maritime Code stipulate that the contract of marine insurance shall be evidenced and amended in writing.
Under a floating policy (or open policy or open cover), coverage is not valid unless the insurer has been informed of the goods being shipped and which require cover.
If a bank pays the beneficiary on the basis of documents which appear on their face to comply with the terms of the letter of credit, then the customer who opened the letter of credit would be obliged to cover the bank through reimbursement of payments made and expenses incurred in meeting its obligations under the letter of credit.
By Hussain Eisa Shiri - Dubai Office
© Al Tamimi & Company 2009
