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Cargo insurance, Institute Classification Clauses & ship's Class

Classification of a vessel with a member society of IACS is usually considered as a yardstick by insurers to judge whether the risk can be reasonably insured. For this reason cargo insurance policies normally make reference to Institute Classification Clauses, whereby the vessel carrying the insured cargo is to be classed with a member society. Could non-compliance with this lead to exclusion of cover and on whom lies the burden of discovering this? The issue came up in The Khalijia−III [2020] before the Indian Supreme Court.

Assured, an importer of steel coils declared to OIC, the insurer, that vessel was classed with I.R.S. without specifying whether it was Int’l register of shipping (non IACS) or Indian register. Classification certificate was also not produced. Vessel grounded following which OIC refused to provide a GA guarantee or salvage security. Assured argued that onus was on insurers to verify vessel particulars.

As per the court, burden of discovering the non−compliant class of the vessel lay on the insured. Where the insurer had issued insurance policy based on incomplete or incorrect details given by the assured, it did not amount to acquiescence to improper classification of the vessel. Non-disclosure of class was a breach of warranty by the assured.

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