Engelhart CTP (US) LLC v Lloyd's Syndicate 1221 for the 2014 Year of Account & 6 Ors

An all risks marine cargo policy ordinarily covers physical loss of or damage to existing goods. It does not cover an economic or paper loss where the insured goods never existed, unless the policy uses clear words extending cover to that risk. Broad wording and bespoke extensions do not necessarily displace that presumption. A shortage clause ordinarily requires a difference between goods shipped and goods delivered. A fraudulent documents clause covering physical loss does not extend to loss caused by accepting documents for a non-existent cargo.

The claimant sought a declaration under Civil Procedure Rules 1998 Part 8 concerning cover under an open-cover marine cargo and storage policy. It had paid for copper said to have been shipped in containers, but the containers contained only slag and no copper cargo had ever existed. The insurers refused the claim.

The central issues were whether the policy’s all risks cover, metals and container provisions, or fraudulent documents clause covered the resulting loss despite the absence of any physical cargo. The court also considered the effect of the policy’s broad commercial wording and specific extensions.

1. Construction principles. The policy was construed by reference to the meaning of its words in their documentary, factual and commercial context, read as a whole and in light of its overall purpose. The relevant commercial context for all risks marine cargo insurance is cover for physical loss of or damage to property.
2. Physical loss. Because no copper had ever been shipped or existed, there was no cargo capable of being physically lost or damaged. The claimant’s loss was economic, arising from its acceptance of fraudulent documents in the expectation that they represented physical goods. Clear words would have been required to extend the policy to such a non-physical loss.
3. Policy wording. The policy’s broad open-cover terms, favourable conditions, surveyor provisions and commodity-specific extensions did not displace the physical-loss presumption. The phrase “broadest coverage shall apply” meant that the broader of the operative and commodity-specific conditions applied, but did not create cover for non-existent goods.
4. Specific clauses. “Shortage of contents” in the container clause bore its ordinary meaning: a difference between goods shipped and goods delivered. It required a physical loss and did not cover goods absent from the outset. The words “alleged to have been laden” and the reference to packages did not alter that conclusion.
5. The fraudulent documents clause expressly required physical loss of or damage to goods. Its wording differed materially from the clause considered in Chemical Bank v Affiliated FM Insurance Company 815 F. Supp. 115 (SDNY 1993) and was akin to the wording considered in Centennial Insurance Company v Lithotech Sales LLC 187 F Supp. 2d 214 (DNJ 2001). The claimant was not entitled to the declaration sought.