No coverage under all risks marine policy for losses resulting from fraudulent shipment

Englehart CTP (US) LLC v Lloyd's Syndicate 1221 & Ors [2018] EWHC 900 (Comm)

Introduction

Englehart, the insured in this UK case, claimed under an “All Risks” cargo insurance policy for loss it sustained in accepting fraudulent bills of lading for a cargo of copper ingots, where that cargo was never in fact shipped.

Background

Englehart paid for and was issued with the shipping documents, including bills of lading, for 1,968 MT of copper ingots from a seller in New York, which were to be shipped in 102 containers to the People’s Republic of China.  Several containers were opened in transit because they were found to be leaking.  This revealed that all 102 containers were filled with slag of nominal value, instead of the copper ingots.

Englehart submitted a claim under its policy with the defendant insurers for loss of the cargo and insured expenses.  The claim was rejected.

Englehart sued, relying on a range of policy terms in support of its contention that the policy extended to the financial loss it had suffered as a result of having innocently accepted the fraudulently issued bills of lading.

The judgment

The Judge reviewed a number of authorities before affirming the general principle that ‘all risks’ policies respond only where there has been physical loss of or damage to the goods shipped, except where such policies specifically allow for recovery of loss of profits or other business interruption losses.  This is their commercial purpose.

In particular (and subject to that exception), there is no cover for paper losses of any sort.  The effect is that there is no cover for goods that never existed, and the position is the same when a seller has fraudulently shipped goods of a description entirely different from those specified in the contract of sale.

The Court declined to characterise the events as amounting to a physical loss of goods.

It was found that the policy did not have the wider scope argued by the plaintiff because this was not specifically provided for in the policy.  It was acknowledged that a marine cargo policy could extend to financial losses if clear words were used, however, for the policy in question this was not the case.  

Because no physical cargo ever existed, it could not be said that a physical loss of that cargo ever occurred.  The reality was that there was no difference between what was loaded and what was discharged.  The Court also did not agree with the plaintiff that “shortage” could refer to a full shortage.  This was simply a paper loss of something that had never existed, so was a non-physical, purely financial loss.  The Court upheld the insurers’ position.

Comment by Pauline Davies

Marine insurers see, reasonably regularly, claims that involve or at least include, aspects of purely financial loss, such as loss of profits or loss of market resulting from damage to cargo.  While this decision arose from a fraudulent shipment, it nevertheless affirms the general principle that no such recovery is available under an all risks policy unless the necessary coverage is specifically incorporated. 

Pauline Davies is a Partner at Fee Langstone