CAN A FORWARDER INSURE A SHIPMENT AFTER A KNOWN LOSS?

CAN A FORWARDER INSURE A SHIPMENT AFTER A KNOWN LOSS?

This question was addressed last week in the case of I.T.N. CONSOLIDATORS, INC. versus NORTHERN MARINE UNDERWRITERS LTD. [i]

A cargo loss was made known to the forwarder ITN which promptly notified the insurance company writing its open policy.   ITN subsequently issued a certificate of insurance to the cargo owner binding the insurer to cover the goods.  ITN paid the insurance company the premium called for by its open policy, but the insurance company later refused to honor the claim and attempted to refund the premium.  A lawsuit ensued, and the United States District Court for the Southern District of Florida granted the insurance company relief, stating that it could not be forced to insure a known loss.  ITN appealed, however, and the lower court’s ruling was overturned.

The 11th circuit Court of Appeals said,  “The question raised by the case of insurance coverage in this case rests on whether Northern in fact agreed to insure the lost shipment. That question in turn depends on whether Northern accepted ITN’s premium payment, thereby consummating the contract to insure it. The district court should determine whether Northern in fact accepted ITN’s premium payment such that a contract to insure the lost shipment was formed.”

The higher court suggested that the insurance premium may have been accepted initially by the insurance company to keep ITN’s business.  Although the appellate court agreed that the insurance company could not normally be forced to insure a loss after all parties knew one had occurred, it stated that under this policy it had the option to do so if it chose.  The language allowing binding of coverage after the fact of knowledge of the loss (common in insurance contracts) was discretionary on the insurance company’s part, and having taken the premium was an indication of its intent to cover the known loss according to the appellate court.  It ordered the lower court to reevaluate the claim in the above light and issue its new decision accordingly.   The lower court still can rule for the insurance company, but it must follow the higher court’s reasoning in its new opinion.

Generally, forwarders can cover shipments after a loss occurs if they have no knowledge of it.   Insurance companies, however, like everyone else deposit received funds immediately and apply them later.  They even allow payment by credit card, which is obviously automated. In fairness, they don’t always know what shipments the payments cover, so how can they be held to have “consummated the contract” by receipt of an automated payment?  We wait to see how the lower court resolves the matter.   More on this to come.