Fenchurch Law

Insufficiency of packing exclusion (Institute Cargo Clauses)

The Institute Cargo Clauses (“ICC”) are a set of standard marine cargo clauses maintained by the Joint Cargo Committee. The latest iteration of these clauses, the ICC 1/1/2009, offers three levels of cover in descending scope of protection: ICC ‘A’ (all-risks), ICC ‘B’ (named perils, broader), and ICC ‘C’ (named perils, narrower).

All three levels of cover are subject to a common set of excluded perils. One commonly encountered exclusion is clause 4.3 of the ICC 1/1/2009 (“the Packing Exclusion”), which excludes:

“… loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured to withstand the ordinary incidents of the insured transit where such packing or preparation is carried out by the Assured or their employees or prior to the attachment of this insurance (for the purpose of these Clauses "packing" shall be deemed to include stowage in a container and "employees" shall not include independent contractors)”.

Where an insurer purports to decline cover in reliance on this exclusion, it is important for a policyholder to closely examine the insurer’s reasons for doing so. In every case, the burden falls on the insurer to prove that the loss was proximately caused by the excluded peril (i.e., the insufficiency of packing). This requires the insurer to show that:

1. The packing or preparation of the subject matter insured was insufficient or unsuitable to withstand the ordinary incidents of the insured transit;
2. The insufficiency or unsuitability of the packing or preparation was the proximate cause of the loss or damage;
3. The packing or preparation was carried out by the assured or their employees; and
4. The packing of preparation was carried out prior to the attachment of the insurance.

Each of these elements is considered below.

1. The packing or preparation of the subject matter insured was insufficient or unsuitable to withstand the ordinary incidents of the insured transit

‘Packing’ and ‘preparation’ refer to those steps necessary to prepare the cargo for the loading process. ‘Packing’ generally encompasses the placing of an outer covering over the cargo or the placing of the cargo in a container, but may at times include the insertion of material into the cargo to protect internal components. ‘Preparation’ generally involves other acts that may be necessary to prepare the cargo for loading, for instance the removal or adjustment of mechanical parts.

In no case would ‘packing’ or ‘preparation’ refer to the very acts resulting in the cargo being loaded on board. Thus in The Icebird [1991] LMLN 312, the Supreme Court of Victoria held that the failure to properly secure helicopters in the hold of the vessel could not be considered an act of ‘packing’ or ‘preparation’.

The phrase ‘the ordinary incidents of the insured transit’ has not been considered in any reported judgment relating to the ICC. A leading textbook suggests that this phrase should be read broadly to impose a ‘a rigorous requirement for packing’. On this reasoning, ‘ordinary incidents’ would refer to all reasonably foreseeable circumstances of the insured transit. Thus, if the packing of cargo was insufficient to withstand foreseeably rough sea conditions such as sudden high winds, the exclusion would apply.

That said, the formula ‘the ordinary incidents of the insured transit’ closely mirrors the classic definition of inherent vice set out in Soya v White [1983] 1 Lloyd’s Rep 122, namely:

“the risk of deterioration of the goods shipped as a result of their natural behaviour in the ordinary course of the contemplated voyage without the intervention of any fortuitous external accident or casualty”.

The phrase ‘the ordinary course of the contemplated voyage’ has been ascribed a narrow meaning in the context of inherent vice. The UK Supreme Court has held that the phrase does not encompass all reasonably foreseeable weather conditions on a voyage, but instead stands as a counterpoint to voyages on which a fortuitous external accident or casualty did occur. In other words, loss or damage involving the intervention of a fortuitous external accident or casualty would not be regarded as taking place in the ‘ordinary course of the contemplated voyage’: see The Cendor MOPU [2011] UKSC 5. There is scope, therefore, for arguing that the ‘ordinary incidents of the insured transit’ should be understood in a similarly narrow fashion and that, where insufficiency of packaging is being relied upon by insurers to decline cover, a careful examination of the circumstances leading up to the loss should be carried out.

2. The proximate cause of the loss or damage was the insufficiency of the packing or preparation to withstand the ordinary incidents of the insured transit

The onus falls on the insurer to prove that the insufficiency of packing was the proximate, i.e. the dominant, cause of the loss. This need not necessarily be the cause that was closest in time to the loss.

As a practical matter, a policyholder should consider whether some other cause was dominant. This might include, for example, extraordinary weather conditions (including temperature) or sea states, or unforeseeable delays. Ultimately the cause of a loss is a question of fact and policyholders with complex losses with multiple factors at play should seek the assistance of experts.

3. The packing or preparation was carried out by the Assured or their employees

The Packing Exclusion only applies where the packing or preparation was carried out by the policyholder’s employees, rather than an independent contractor, and a policyholder should always consider this distinction.

It has been suggested that the rationale for the distinction is that insurers potentially have a right of subrogation against an independent contractor who carried out the packing or preparation, and may therefore be more willing to accept the risk of insufficient packing in that situation.

4. The packing or preparation was carried out prior to the attachment of the insurance.

The Packing Exclusion only applies where the allegedly insufficient or unsuitable packaging was carried out “prior to the attachment of this insurance”. The time of attachment is governed by clause 8.1 of the ICC 1/1/2009, the first paragraph of which provides:

“[the] insurance attaches from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit …”

Cover under a policy subject to the ICC clauses attaches when the cargo is moved for ‘immediate loading’ onto the carrying vehicle. ‘Immediate’ in this context means as quickly as possible, without any unreasonable delay. As such, where goods are moved, albeit not for the purposes of the immediate loading (e.g. when cargo is moved into a holding area but loading onto the carrying vehicle only takes place several days later), it would be difficult to establish that the policy had attached at the time the cargo was moved into the holding area.

If the process of loading the cargo onto the carrying vehicle consists of several discrete steps taken in close succession, at which step would the insurance attach? Usefully for policyholders, case law suggests that the policy would attach when the first (rather than the last) of these steps is taken.

Thus in Swashplate v Liberty Mutual [2020] FCA 15, (i) a helicopter was moved out of a hangar and loaded into a container where it was secured, and (ii) the container was then loaded onto the carrying truck two hours later. The helicopter was damaged during transit as it had not been secured properly in the container. Insurers attempted to argue that the policy attached only when the container was loaded onto the truck. However, the Federal Court of Australia commented in obiter that the requirement for immediacy was satisfied once the helicopter was moved out of the hangar, and that the policy attached at that point. Since the error in securing the helicopter took place after the policy attached, the insurers could not rely on the Packing Exclusion.

Conclusion

Although we commonly see insurers seeking to decline cover on the basis of the Packing Exclusion, whether they are entitled to do so is often far from straightforward.

For example, we were recently consulted on behalf of a policyholder with a claim arising from molasses that had been packed into flexibags, which were then loaded on to shipping containers. The flexibags did not have automatic air vents and ended up bulging after being exposed to unusually high temperatures while in transit. It was questionable whether the Packing Exclusion was truly applicable, since the damage arguably was not caused by the ‘insufficiency or unsuitability of packing … to withstand the ordinary incidents of the insured transit’.

In short, for the Packing Exclusion to apply, the facts of the case must always fall within the four requirements identified above. A policyholder should thus closely scrutinise a declinature which relies on the Packing Exclusion and consider if the insurer has genuinely satisfied these requirements.

Authors 

Toby Nabarro, Director, Singapore

Eugene Lee, Senior Associate 

by Fenchurch Law

Win for policyholder in triple insurance case

Watford Community Housing Trust v Arthur J Gallagher Insurance Brokers Limited [2025] EWHC 743 (Comm)

In a judgment favourable to policyholders delivered on 8 April 2025, the Commercial Court upheld a policyholder’s right to choose on which policy to claim where cover was provided under multiple policies. The Court also confirmed that, where insufficient cover is provided by an individual policy, the policyholder may claim sequentially under two or more policies.

Background

The Claimant was responsible for a serious data breach, the financial consequences of which were covered under three separate insurance policies arranged by the Defendant broker (a Cyber Policy, a Combined Policy, and a PI Policy, which contained indemnity limits of £1m, £5m and £5m respectively).

Each Policy contained an ‘Other Insurance’ clause, which provided that, where multiple policies covered the same loss, the Policy would only cover losses in excess of those covered by the other policy.

Following the breach, and on the Broker’s advice, the Claimant notified the Cyber Insurer but not the Combined or PI Insurers, resulting in late notification. The Combined Insurer eventually affirmed cover despite this; but the PI Insurer maintained a declinature, and it was common ground that it had been entitled to do so. As a result, the Claimant had £6m of available cover under the Cyber and Combined Policies.

The Broker subsequently accepted that its advice had been negligent.

As its losses arising from the data breach exceeded the £6m of available cover, the Claimant sued the Broker, alleging that but for its negligence, the Claimant would have been entitled to a total indemnity of £11m (being the sum of the indemnity limits of all three policies).

The Broker’s position

The Broker argued that the maximum total indemnity to which the Claimant would have been entitled, even absent its Broker’s negligence, was the maximum liability under any one Policy, i.e. £5m. The Broker further argued that, since the Policyholder had already received £6m from the Cyber and Combined Policies, it had suffered no loss in not being covered under the PI Policy, as it had already recovered more than the maximum indemnity to which it would have been entitled.

In support of its case that the maximum recoverable indemnity was only £5m, the Broker submitted, and the Court accepted, that the ‘Other Insurance’ clauses in each of the Policies all cancelled out one another.  Accordingly, argued the Broker, this was a case of triple insurance where the Policies provided primary cover for £1m, £5m and £5m respectively.

The Broker then argued that. in such a case of triple insurance, a general principle of ratable contribution applied, such that the maximum indemnity to which the Claimant was entitled was the maximum liability under any one policy. As a result, each Insurer’s liability would be limited to an equitable proportion of that capped liability. For example in the current situation,  the Cyber, Combined and PI insurers would each be liable for one-third of the first £1m of the Claimant’s loss, and (ii) the Combined and PI insurers would each be liable for one-half of the next £4m of the Claimant’s loss, such that the Claimant would be entitled to £333,333, £2,333,333 and £2,333,333 from the Cyber, Combined and PI Insurers respectively - ie, a total of £5m.

In addition, the Broker had an alternative argument that, since the Policies were worded such that none of the insurers had agreed to provide primary coverage when another primary policy existed, effect should be given to that intention, by limiting the total indemnity available to the maximum indemnity under any one policy, thus reducing each individual insurer’s liability.

Decision

In finding for the Claimant, the court held that, contrary to the Broker’s principal submission (which the court said had been mistakenly based on cases involving claims between insurers) ,there was no general principle of rateable contribution in cases involving double (or triple) insurance whereby a policyholder’s indemnity was capped at the highest limit of any one policy. Further, the policyholder could choose the order in which to claim under the available policies, and, if it failed to recover the whole loss from one, it could recover the balance from the other(s). It would then be a matter for the insurers to establish contribution between themselves.

In addressing the Broker’s alternative argument that the wording of the policies operated to restrict the total indemnity to the highest single limit, the Court accepted that the general proposition that the wording of the policies could have displaced the usual rule outlined above, but held that, as a matter of construction, that was not the effect here.

As the Judge explained:

“It seems to me that if an insured has paid more than one premium for more than one primary policy against liability incurred above a specified attachment point and up to a specified limit, absent an express contractual provision that provides otherwise, as a matter of general principle the insured should be able to recover the whole of its loss under one or more of the policies up to a maximum of the combined limits. Contribution, if it arises, is a matter for the insurers inter se and absent a rateable proportion clause in the policy is of no concern to the insured”.

The Broker was therefore liable for the Claimant’s losses which subsisted after payment by the Cyber and Combined Policies, subject to the limit of indemnity under the PI Policy.

The full judgment can be read here:

https://www.bailii.org/ew/cases/EWHC/Comm/2025/743.pdf

Authors 

Jonathan Corman, Partner 

Eugene Lee, Senior Associate 

Matthew King, Associate (Foreign Qualified Lawyer)

by Fenchurch Law

Neurodiversity Celebration Week – Q&A with Daniel Robin

Neurodiversity Celebration Week (NCW) is a global initiative aimed at challenging stereotypes and misconceptions about neurological differences. As part of NCW, Deputy Managing Partner Dan Robin takes part in an open and insightful Q&A with Associate Dru Corfield, sharing his personal experiences and perspectives.

Dru: Hi Dan, thank you for agreeing to speak about your neurodiversity as part of neurodiversity week. It is an important conversation and something that the firm is big on supporting. I suppose the obvious first question is in what way are you neurodiverse?

Dan: I have dyspraxia.

Dru: And what does that mean to a layman? How does your dyspraxia manifest?

Dan: It affects my co-ordination, particularly hand-eye as my wife found out when we went (or tried to go) motorbike riding when we first met in Australia. Workwise it makes organisation challenging and has in the past affected my ability to write. It has also occasionally had an adverse effect on my time management.

Dru: How old were you when you were diagnosed, and what gave the game away?

Dan: 12. I think my parents sought a diagnosis based on issues with coordination and how disorganised I was with schoolwork.

Dru: What was the most difficult part of being dyspraxic as a teenager?

Dan: Back when I was in teenager in the late 90’s/early 00’s (don’t let the hairline fool you, I’m only 38) there was a real lack of awareness about dyspraxia, and at school the perception was that I was lazy and sloppy rather than ascertaining whether there was another reason behind it. It was also a challenge when first learning to drive, I started to learn on a manual car but quickly learnt that was not going to happen.

Dru: And how has public awareness of neurodiversity improved since you were diagnosed / a teenager?

Dan: It’s come on loads in the last 20 years. I think the biggest change is that neurodiversity has gone from being seeing as detrimental, to being accepted, to being seen in some circumstances as an asset.

Dru: How can being neurodiverse be an asset?

Dan: Where you have to work on certain things that don’t come naturally, it can make you better at then than those to whom it came naturally. As a Spurs fan (unfortunately), I will use Harry Kane as an analogy, had he not had setbacks and had to work on parts of his performance, he would not be the best striker in the world that he is today. There are also some neurological differences that lend themselves to the skills needed for professional services, running business etc.

Dru: How has it affected you rise at Fenchurch Law from an Associate in 2018 to the Deputy Managing Partner in 2024?

Dan: I think having to work on organisation skills and other elements of the roles I have had puts me in a unique position to help others / young members of staff – because simply put there were areas of my role which I wasn’t good at it but had to improve in order to develop. I would like to think that I am a good example of the fact that there are no barriers to progression if you are neurodiverse.

Dru: How have Fenchurch been with your neurodiversity?

Dan: The support has always been incredible; I was open from start and they immediately tried to put measures in to help me. I felt comfortable being able to tell the firm and they didn’t take it as a negative, because even 7 years ago the way neurodiversity was viewed in wider society was different to how it is seen today.

Dru: And finally, what advice would you give to neurotypical people when dealing with people with dyspraxia?

Dan: Take the time to understand. Particularly because it can manifest in a way that can be misinterpreted as someone having a lack of care, attention to detail or even laziness. There are measures in place to help with nearly all aspects needed for a professional services role, and it’s about working with the individual to work out what support they require. For example, with a junior lawyer, it may be accepting that they struggle with note taking in meetings, and finding a way to work with that, or they require instructions to them in a certain way.

Dru: Thanks very much for sharing, Dan.

Daniel Robin is the Deputy Managing Partner at Fenchurch Law.

by Fenchurch Law