Recently, the FSB announced that a marine insurer was breaking the FAIS & STIA (Short Term Insurance Act) regulations. The main issues were that the carrier/third party sold insurance to the cargo owners, and the policy was issued in the name of the carrier on behalf of the cargo owners, without adhering to the relevant FAIS & STIA legislation.
Most carriers do not want to be bothered or burdened with the administration and compliance issues around STIA & FAIS, as offering the carrier a first party policy on behalf of the cargo owner is not feasible. If a carrier cannot repay or refuse to repay a loss suffered to goods while in their care, custody or control, the cargo owner could take legal action against the carrier and will also take his business to another carrier. Thus, to secure the carrier’s livelihood, it’s essential that they have liability protection.
Here are the definitions which emphasise the difference between a First Party policy and Liability offerings.
A Carrier Goods in Transit policy, also known as First Party cover, is issued for the benefit the owner of the goods being transported. Therefore, the owner of the goods enjoys cover under a Goods in Transit policy and not the carrier.
Insurable interest arises through ownership. Under this policy, the carrier enjoys no cover but can arrange cover on behalf of the owner upon receipt of written instruction to do so. However, the carrier can only offer cover if they:
- have a valid FSP Licence issued by the FSB,
- are FAIS compliant as a financial service provider as per the amended FAIS Act,
- have approval from an insurer, and
- have the necessary authority regarding STIA to collect/handle premiums in a legally compliant manner.
The insurer will always indemnify the owner of the goods.
A Carriers Cargo Liability Policy is a third party liability policy as it covers the carrier of the goods. They can insure their acts of negligence (whether gross negligence or more relaxed regarding common law negligence) for loss or damage to third party property if the cargo owner is enforcing a claim against the carrier.
Insurable interest arises from any liability (as defined in our policy) they may cause customers’ property while transporting it. The emphasis of this policy is on while in the carrier’s (or their approved sub-contractors’) care, custody or control. Under this type of policy, we indemnify the carrier and not the owner of the goods.
Thus, considering the above definitions, it is crucial that our Carriers Cargo Liability policies are structured in such a manner that they comply with all concerns raised by the FSB. It is crucial to ensure that the carriers understand that they may not offer full First Party Goods in Transit cover to their client or pass the insurance cost (premium charge) to the actual cargo owners.
Carriers may negotiate commercial contracts (independent from our insurance policies) with their clients, the cargo owners. However, they’ll then accept certain liabilities following an event while the goods are in their care, custody or control, which results in financial loss to the cargo owner. Again, it’s important to note, the carrier must understand that our policies are independent of their commercial contract; (thus no consequential losses are covered) and is structured around defined perils as per the relevant institute and non-institute clauses plus other warranties in our wording.
Although Legal Liability Goods in Transit cover has been around for many years, the problem is that most insurers offer policies on a strict legal liability basis. Losses will only be settled if it can be proven that the loss/damage directly results from gross negligence by the carrier, thus, still not providing the carrier with an optimal solution. This has led to the development of a more relaxed/carrier-friendly Carriers Cargo Liability policy which a select few marine markets are now offering.
Bear in mind, the FSB legislation’s intent and practical application around policies issued to third parties are still considered a grey area, even by expert SA maritime lawyers.